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').
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