To view the PDF file, sign up for a MySharenet subscription.

MONTAUK HOLDINGS LIMITED - Unaudited Condensed Consolidated Interim Results for the six months ended 30 September 2018

Release Date: 31/10/2018 16:50
Code(s): MNK     PDF:  
Wrap Text
Unaudited Condensed Consolidated Interim Results 
for the six months ended 30 September 2018

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 2018


CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                              Unaudited     Unaudited       Audited
                                                           30 September  30 September      31 March
                                                                   2018          2017          2018
                                                                  $'000         $'000         $'000
ASSETS                         
Non-current assets                                              190 831       156 927       162 883 
Property, plant and equipment                                   151 434       112 323       130 396 
Other non-current financial assets                                  593             7           527 
Intangibles                                                      27 974        21 932        19 275 
Investments in joint ventures                                     1 096             -             - 
Deferred taxation                                                 8 790        21 763        11 742 
Long-term receivables                                               944           902           943 
                         
Current assets                                                   23 612        40 947        39 832 
Inventories                                                       3 629         1 588         2 603 
Other current financial assets                                      160            45            29 
Trade and other receivables                                      11 089         8 881         8 028 
Taxation                                                              -            10             - 
Bank balances and deposits                                        8 734        30 423        29 172 
Disposal group assets held for sale                                   -           769             - 
Total assets                                                    214 443       198 643       202 715 

EQUITY AND LIABILITIES                         
Equity                         
Equity attributable to equity holders of the parent             146 081       128 527       141 605 
                         
Non-current liabilities                                          52 925        47 715        41 544 
Borrowings                                                       43 927        41 349        36 208 
Long-term provisions                                              5 298         6 350         5 336 
Contingent consideration                                          3 700             -             - 
Other non-current financial liabilities                               -            16             - 
                         
Current liabilities                                              15 437        22 080        19 566 
Trade and other payables                                          8 096        13 867        10 342 
Other current financial liabilities                                 151           229           129 
Current portion of borrowings                                     5 218         6 602         6 699 
Taxation                                                            855           399           742 
Provisions                                                        1 117           983         1 654 
                         
Non-current liabilities held for sale                                 -           321             - 
                         
Total equity and liabilities                                    214 443       198 643       202 715 
Net asset carrying value per share (cents)                          107            95           104 


CONSOLIDATED INCOME STATEMENT                        
                                                                            Unaudited     Unaudited
                                                                         30 September  30 September
                                                                      %          2018          2017
                                                                 change         $'000         $'000
Revenue                                                           (3.5%)       51 242        53 111 
Expenses                                                                      (27 742)      (26 280)
EBITDA                                                            (12.4)       23 500        26 831 
Other income                                                                      698           107 
Depreciation and amortisation                                                  (7 854)       (7 757)
Operating profit                                                               16 344        19 181 
Investment income                                                                  36            31 
Finance costs                                                                    (765)       (1 952)
Loss on extinguishment of borrowings                                                -        (1 611)
Share of losses of joint ventures                                                (224)            -   
Asset impairments                                                                (854)            -   
Profit before taxation                                            (7.1%)       14 537        15 649 
Taxation                                                                       (3 378)       (6 072)
Profit for the period                                                          11 159         9 577 
                    
Attributable to:                    
Equity holders of the parent                                                   11 159         9 577 


CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME                  
                                                                            Unaudited     Unaudited
                                                                         30 September  30 September
                                                                                 2018          2017
                                                                                $'000         $'000
Profit for the period                                                          11 159         9 577 
Other comprehensive income:               
Items that may be reclassified subsequently to profit or loss                
Foreign currency translation differences                                           (8)           83 
Total comprehensive income                                                     11 151         9 660 
               
Attributable to:               
Equity holders of the company                                                  11 151         9 660 


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                            Unaudited     Unaudited
                                                                         30 September  30 September
                                                                                 2018          2017
                                                                                $'000         $'000
Balance at the beginning of the period                                        141 605       122 729 
Total comprehensive profit                                                     11 151         9 660 
Equity-settled share-based payments                                               304           347 
Dividends                                                                      (6 979)       (4 209)
Balance at the end of the period                                              146 081       128 527 


RECONCILIATION OF HEADLINE EARNINGS
                                                                Unaudited             Unaudited
                                                             six months ended      six months ended
                                                             30 September 2018     30 September 2017
                                                        %          $'000                 $'000     
                                                   change      Gross      Net        Gross      Net
Earnings attributable to equity holders 
  of the parent                                     16.5%              11 159                 9 577 
                              
Losses on disposal of plant and equipment                        173      137            6        6 
Impairment of plant and equipment                                854      854            -        -   
Gain on disposal of intangible assets                           (872)    (689)        (113)    (113)
Headline profit                                     21.0%              11 461                 9 470 
                              
Basic earnings per share (cents)                              
Earnings                                            16.4%                8.19                  7.04 
Headline earnings                                   20.7%                8.41                  6.97 
                              
Weighted average number of shares in issue ('000)                     136 328               135 940 
Actual number of share in issue at the end of the 
  period (net of treasury shares and shares issued 
  in respect of restricted stock plan) ('000)                         136 328               135 940 
                              
Diluted earnings per share (cents)                              
Earnings                                            15.8%                8.06                  6.96 
Headline earnings                                   20.3%                8.28                  6.88 
                              
Weighted average number of shares in issue ('000)                     138 486               137 640 


CONSOLIDATED STATEMENT OF CASH FLOWS                  
                                                                            Unaudited     Unaudited
                                                                         30 September  30 September
                                                                                 2018          2017
                                                                                $'000         $'000
Cash flows from operating activities                                           15 997        19 956 
Cash generated by operations                                                   23 997        27 384 
Net finance costs                                                                (806)       (1 431)
Changes in working capital                                                     (6 881)       (4 925)
Taxation paid                                                                    (313)       (1 072)
               
Cash flows from investing activities                                          (35 552)       (4 004)
Business combinations and disposals                                           (12 980)            - 
Investments (acquired)/disposed of                                             (1 320)        7 759 
(Increase)/decrease in long-term receivables                                     (207)          311 
Proceeds from insurance recovery                                                    -           350 
Intangible assets                
- Additions                                                                         -          (951)
- Disposals and refunds                                                         1 050           638 
Property, plant and equipment               
- Additions                                                                   (22 095)      (12 186)
- Disposals                                                                         -            75 
               
Cash flows from financing activities                                             (872)       (5 236)
Debt issuance costs                                                              (188)         (798)
Debt extinguishment costs                                                           -        (1 127)
Dividends paid                                                                 (6 979)       (4 209)
Net funding raised                                                              6 295           898 
               
(Decrease)/increase in cash and cash equivalents                              (20 427)       10 716 
Cash and cash equivalents                
At the beginning of the period                                                 29 172        19 622 
Foreign exchange differences                                                      (11)           85 
At the end of the period                                                        8 734        30 423 
               
Bank balances and deposits                                                      8 734        30 423 


NOTES

BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the six months ended 30 September 2018 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 in its consolidated financial 
statements as of and for the year ended 31 March 2018, except for the adoption of IFRS 9 and 
IFRS 15 in the current period, which did not have an impact on the results of the Company. 
As required by the JSE Limited Listings Requirements, the Company reports headline earnings in 
accordance with Circular 4/2018: 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).

BUSINESS COMBINATIONS
Acquisition of Pico Energy, LLC
On 21 September 2018 the Company completed the acquisition of 100% of Pico Energy, LLC ("Pico"), 
a dairy digester facility generating renewable electricity, for $16.7 million in cash and 
contingent consideration.

The assets and liabilities acquired are as follows:
                                                                  $'000
Property, plant and equipment                                    11 531
Intangibles                                                       4 719
Inventories                                                         390
Trade and other receivables                                         120
Trade and other payables                                            (80)
Net assets acquired                                              16 680
Net cash outflow on acquisition                                  12 980
Contingent consideration                                          3 700

As of 30 September 2018 the accounting for this acquisition is provisional and is subject to 
fair value adjustments once finalised. Contingent consideration is based on future earnings of the 
acquired entity.

The results of operations of the acquired facilities are included in the Company's consolidated 
results from the date of acquisition. An immaterial amount of revenues and profit after tax 
related to the acquisition are included in the consolidated income statement for the six months 
ended 30 September 2018. Had the acquisition occurred on the first day of the financial reporting 
period, approximately $0.8 million in revenues and an immaterial amount in profit after tax would 
have been included in the consolidated income statement.

RESULTS

UNAUDITED CONSOLIDATED INCOME STATEMENT
Revenue from the Company's renewable natural gas facilities decreased by $0.6 million or 1.4% for 
the six months ended 30 September 2018 from the prior comparative six months. Higher renewable 
natural gas volumes were more than off-set by decreases in both commodity and renewable 
identification number ("RIN") pricing. The Company produced 2.2 million MMBtus of renewable natural 
gas volumes, an increase of 11.7% over the prior-year period. As of 30 September 2018 the 
commissioning efforts of two new renewable natural gas facilities were substantially complete, 
yielding initial commissioning volumes of 0.3 million MMBtus. The favourable volume increase is 
attributed to the commissioning efforts associated with two new renewable natural gas facilities, 
partially off-set by decreased volumes from existing facilities due primarily to landfilling 
operational impacts on the quality and quantity of inlet gas available to our processing facilities. 
Average commodity pricing for natural gas during the six months ended 30 September 2018 was 7.8% 
lower than the prior comparative six months. During the six months ended 30 September 2018 the 
Company self-marketed 8.8 million RINs, a 0.6 million increase from the prior comparative six months. 
Average pricing realised on RIN sales during the six months ended 30 September 2018 was 9.4% lower 
than average pricing realised in the prior comparative six months, primarily attributed to a 52.6% 
decrease in the average D5 advanced biofuel RIN price for the six months ended 30 September 2018 
($0.49) versus the prior comparative six months ($1.03) and a reduction in the cellulosic waiver 
credit ("CWC") from $2.00 in calendar 2017 to $1.96 in calendar 2018. At 30 September 2018 the 
Company had 2.4 million RINs generated and unsold in inventory 1.0 million higher than at 
30 September 2017 due to the initial start-up volumes of the two new renewable natural gas 
facilities. For the six months ended 30 September 2018, 26.2% of revenue from renewable natural 
gas production was monetised at fixed prices.

Revenue from the Company's electric generation facilities decreased by $1.3 million or 12.7% for 
the six months ended 30 September 2018 from the prior-year period. The Company produced 0.1 million 
MWh in renewable electric volumes, a decrease of 25.9% over the prior comparative six months. 
The volume decrease is primarily attributed to the conversion of a renewable electric generation 
facility to a renewable natural gas facility and a utility interconnection failure impacting the 
Bowerman Power LFG, LLC ("Bowerman") facility in Irvine, California. The Company expects to receive 
during the third quarter of 2019 insurance proceeds related to this failure from its business 
interruption policies. Average commodity pricing for electricity during the six months ended 
30 September 2018 was 7.9% higher than the prior comparative six months. For the six months ended 
30 September 2018, 82.7% of revenue from renewable electricity production was monetised at fixed prices.

Operating expenses for the six months ended 30 September 2018 increased by $1.5 million or 5.6%. 
The increase is driven primarily by operating expenses related to the two new renewable natural 
gas facilities placed into service during the six-month period ended 30 September 2018. The Company's 
Bowerman facility incurred increased operating expenses during the six-month period ended 
30 September 2018 due to normal engine maintenance which increases throughout the engine life. 
These increases were off-set by lower levels of operating expenses incurred at the other Company 
facilities. The losses recognised from the Company's hedging programmes for the six months ended 
30 September 2018 were less than $0.1 million compared to gains of $0.1 million recognised in the 
prior comparative six months. 

During the six-month period ended 30 September 2018 the Company's share of losses reported from 
its investment in the newly created Red Top Renewable Ag, LLC joint venture ("Red Top") were 
approximately $0.2 million. 

The Company continually reviews cash flows from its portfolio of facilities. Associated with this 
review, the Company recorded $0.9 million of impairment charges related to two of its electric 
generation facilities during the six-month period 30 September 2018.

During the six months ended 30 September 2017 the Company realised other income of $3.5 million, 
largely attributable to settlement proceeds from arbitration. In August 2017 the Company recognised 
$1.6 million in expenses related to the early extinguishment of debt. Total cash paid associated 
with this expense was $1.1 million. These items did not recur in the current period.

For the six months ended 30 September 2018 the Company recognised $3.0 million in tax expense, 
of which $3.0 million was off-set against the Company's deferred tax asset.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND CASH FLOW
Investments in Red Top during the six-month period ended 30 September 2018 include the Company's 
$1.0 million in initial capital contributions and $0.3 million in additional capital contributions.

Fixed and intangible assets at 30 September 2018 include $10.9 million and $0.1 million in costs 
related to the construction of two renewable natural gas facilities, respectively. As of 
30 September 2018 the Company had placed in service two renewable natural gas facilities totalling 
$60.0 million in fixed and intangible assets. Deferred tax assets of $8.8 million at 
30 September 2018 relate to the Company's net operating losses that may be utilised for set-off 
against future taxable income. 

In August 2018 the Company expanded its revolving credit facility by $20.0 million through 
31 March 2019. 

In August 2018 Bowerman amended its five-year term loan with a commercial bank, increasing its 
amortisation period through its original maturity.

The Company's combined borrowings at 30 September 2018 were $49.1 million, net of debt issuance 
costs. Including outstanding draws against its revolving credit facility, $24.9 million was 
outstanding on the Company's commercial bank facilities, and $24.2 million was outstanding on the 
Bowerman commercial bank facilities. Of the total Company borrowings outstanding at 
30 September 2018, $5.2 million is currently due within the next 12 months. 

Cash flow from operating activities of $16.0 million for the six months ended 30 September 2018 
was $4.0 million lower than the prior-year period. Included in cash flow from investing activities 
was asset additions of $22.1 million, $13.0 million for the Pico acquisition, and $1.3 million of 
capital contributions to the Red Top investment. As of 30 September 2018, the Company had cash on 
hand of $8.7 million, and $24.2 million and $8.0 million capacities remaining under the Company's 
Corporate and Bowerman revolving credit facilities, respectively.  

EXECUTIVE OFFICER'S REPORT
Cellulosic RINs
In June 2018 the Environmental Protection Agency ("EPA") released the proposed renewable volume 
obligations ("RVOs") for 2019 of 381 million gallons cellulosic D3 RINs, representing a 32% increase 
over the 2018 RVOs for cellulosic D3 RINs of 288 million gallons using the same "rate of growth" 
methodology as EPA used in setting the 2018 RVOs. The EPA accepted over 4 000 comments through 
17 August 2018 from industry participants (including Montauk) on the volumes which it intends to 
use in finalising the volume obligations 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 volume obligations that meet the projected production for the industry. 
The proposed RVOs for 2019 are expected to be finalised by the EPA by 30 November 2018. The issuance 
by the EPA of timely and sufficient annual volume obligations to accommodate the renewable natural gas 
("RNG") industry's growing production levels are paramount to the stabilisation of the RIN market.

The market prices of D3 cellulosic RINs softened during the reporting period largely as a result 
of both the additional supply of vintage 2017 RINs being carried forward by obligated parties into 
2018 due to the EPA granting a record number of small refinery exemptions in 2017 and the anticipated 
drop in the CWC in 2019 from the $1.96 CWC in 2018 disincentivising carry-forwards of 2018 vintage 
D3 RINs into 2019.

Development Activities
In April 2018 the Company entered into an agreement with one of its existing landfill counterparties 
to operate the gas collection system, and build, own and operate an RNG facility at a landfill 
located in Texas for a term of 20 years from commercial operation. Upon commercial operation 
the output from this new RNG facility is intended to be contracted for use in the transportation 
sector to allow for the generation of RINs under the renewable fuel standards ("RFS"). Commercial 
operation at this RNG project is targeted to commence in the first quarter of the 2020 financial year.

In May 2018 the Company entered into an agreement with one of its existing landfill counterparties 
to convert an existing renewable electric project to an RNG facility by building, owning and 
operating an RNG facility at a landfill located in Texas for a term of 20 years from commercial 
operation. Upon commercial operation the output from this new RNG facility is intended to be 
contracted for use in the transportation sector to allow for the generation of RINs under the RFS. 
Commercial operation at this RNG project is targeted to commence in the third quarter of the 
2020 financial year.

In July 2018 the Company entered into the Red Top joint venture agreement with a dairy farm partner 
to build, own and operate a manure digester and RNG facility at a California commercial dairy farm 
for a period of 20 years from commercial operation. The Company holds an 80% interest in the 
joint venture and it represents the Company's first RNG project on a dairy farm. Upon commercial 
operation, the output from this new RNG facility is anticipated to generate RINs under the 
RFS programme and low carbon fuel standard ("LCFS") credits under the California Low Carbon Fuel 
Standard. Commercial operation at this RNG project is targeted to commence in the third quarter 
of the 2020 financial year.

In September 2018 related to the acquisition of Pico, the Company plans to build, own and operate 
an RNG facility at a dairy farm located in Idaho for a term of 20 years from commercial operation. 
Upon commercial operation the output from this new RNG facility is anticipated to generate RINs 
under the RFS programme and LCFS credits under the California Low Carbon Fuel Standard. 
Commercial operation at this RNG project is targeted to commence in the fourth quarter of the 
2020 financial year.

These additions will further strengthen Montauk's position as a leader in the production of 
renewable RNG from landfill methane. 

US Listing
Although the Company is incorporated in South Africa and trades on the JSE, the Company's 
operations, assets, employees and customer relationships are situated exclusively in the US and 
are held by its US subsidiaries. To better strategically align the Company with the jurisdiction 
in which it operates, the US programmes and policies the Company participates in that incentivise 
the use of renewable fuels, and to provide greater access to potential investors, the Company 
intends to pursue a primary listing on NASDAQ and a secondary, inward listing on the JSE Limited 
("JSE") through a corporate restructuring (the "Proposed Listing"). It is envisaged that this will 
result in the formation of a new entity ("Montauk Energy, Inc."), which will ultimately hold the 
business and assets of the Company.

The Company has received approval from the South African Reserve Bank to pursue the Proposed 
Listing. The Proposed Listing is subject to shareholder and further regulatory approval both in 
South Africa and in the US. Upon receipt of such approvals the Company will begin pursuing steps 
to effectuate the Proposed Listing with a target date of April 2019. At the conclusion of the 
restructuring in connection with the Proposed Listing, it is envisaged that shareholders of the 
Company will receive shares in Montauk Energy, Inc. by way of a distribution in specie. It is 
envisaged that Montauk Energy, Inc. shall then trade with a primary status on NASDAQ and a 
secondary status on the JSE. Following the implementation of the Proposed Listing the Company 
will have no remaining operating assets and it is intended that the Company will be de-listed 
from the JSE. The current executive management team of the Company is expected to continue to 
serve in the same capacities with Montauk Energy, Inc.

EVENTS SUBSEQUENT TO REPORTING DATE
Other than as stated in these results, the directors are not aware of any further matter or 
circumstance arising since the reporting date that would affect the results of the Company for 
the year ended 30 September 2018 or its financial position on that date. 

CHANGES IN DIRECTORATE
Mr A van der Veen retired by rotation as non-executive director effective 5 September 2018. 
Mr TG Govender was appointed as a non-executive director effective 5 September 2018.

DIVIDEND TO SHAREHOLDERS
The directors of Montauk have resolved to declare an interim ordinary dividend number 3 of 
43.5 cents (gross) per Montauk share for the year ended 31 March 2019 from income reserves. 
The salient dates for the payment of the dividend are as follows:

Last day to trade cum dividend                                            Tuesday, 20 November 2018
Commence trading ex dividend                                            Wednesday, 21 November 2018
Record date                                                                Friday, 23 November 2018
Payment date                                                               Monday, 26 November 2018

No share certificates may be dematerialised or rematerialised between Wednesday, 21 November 2018 
and Friday, 23 November 2018, 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 8.7 cents per share.
- The net local dividend amount is 34.8 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

Cape Town 
31 October 2018


Directors: JA Copelyn (Chairman)*, ML Ryan (Chief Executive Officer)#, SF McClain (Chief Financial 
Officer)#, MH Ahmed*, TG Govender*, MA Jacobson*##, NB Jappie*, BS Raynor*# 
*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 
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: 31/10/2018 04:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story