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Unaudited condensed consolidated interim results for the six months ended 30 September 2019
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 2019
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
30 September 30 September 31 March
2019 2018* 2019*
$'000 $'000 $'000
ASSETS
Non-current assets 209 758 189 240 197 630
Property, plant and equipment 178 579 152 619 165 243
Goodwill 60 60 60
Other non-current financial assets 486 593 487
Intangibles 21 477 25 138 23 153
Right-of-use asset 867 - -
Investment in joint venture - 1 096 -
Deferred taxation 7 722 8 790 7 722
Non-current receivables 567 944 965
Current assets 19 293 23 343 64 167
Inventories 4 857 3 480 4 505
Other current financial assets 551 160 391
Trade and other receivables 10 852 10 969 11 461
Bank balances and deposits 3 033 8 734 47 810
Disposal group assets held for sale 893 - 1 096
Total assets 229 944 212 583 262 893
EQUITY AND LIABILITIES
Equity 152 892 146 081 151 460
Equity attributable to equity holders of the parent 152 892 146 081 151 460
Non-current liabilities 53 261 51 145 78 184
Borrowings 43 577 43 927 69 975
Long-term provisions 5 697 5 298 5 505
Lease liability 573 - -
Other non-current financial liabilities 3 414 1 920 2 704
Current liabilities 23 791 15 357 33 249
Trade and other payables 12 899 8 016 13 408
Other current financial liabilities 523 151 290
Current portion of borrowings 9 254 5 218 18 279
Lease liability 300 - -
Taxation 350 855 469
Provisions 465 1 117 803
Total equity and liabilities 229 944 212 583 262 893
Net asset carrying value per share (cents) 112 107 111
* Restated
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
30 September 30 September
% 2019 2018
change $'000 $'000
Revenue (1.4%) 50 525 51 242
Expenses (35 724) (27 742)
EBITDA (37.0%) 14 801 23 500
Other income 175 698
Depreciation and amortisation (10 008) (7 854)
Operating profit 4 968 16 344
Investment income 14 36
Finance costs (3 610) (765)
Share of losses of joint ventures - (224)
Investment surplus 94 -
Asset impairments (29) (854)
Profit before taxation (90.1%) 1 437 14 537
Taxation (162) (3 378)
Profit for the period 1 275 11 159
Attributable to:
Equity holders of the parent 1 275 11 159
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Unaudited Unaudited
30 September 30 September
2019 2018
$'000 $'000
Profit for the period 1 275 11 159
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences 2 (8)
Total comprehensive income 1 277 11 151
Attributable to:
Equity holders of the parent 1 277 11 151
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited
30 September 30 September
2019 2018
$'000 $'000
Balance at the beginning of the period 151 460 141 605
Current operations
Total comprehensive profit 1 277 11 151
Equity settled share-based payments 155 304
Dividends - (6 979)
Balance at the end of the period 152 892 146 081
RECONCILIATION OF HEADLINE EARNINGS
Unaudited Unaudited
30 September 2019 30 September 2018
% $'000 $'000
change Gross Net Gross Net
Earnings attributable to equity holders
of the parent (88.6%) 1 275 11 159
Losses on disposal of plant and equipment 124 98 173 137
Impairment of plant and equipment 29 29 854 854
Gain on disposal of intangible assets - - (872) (689)
Gain on disposal of joint venture (94) (94) - -
Headline profit (88.6%) 1 308 11 461
Basic earnings per share (cents)
Earnings (88.6%) 0.93 8.19
Headline earnings (88.6%) 0.96 8.41
Weighted average number of shares in issue ('000) 136 842 136 328
Actual number of share in issue at end of period
(net of treasury shares and shares issued in
respect of restricted stock plan) ('000) 136 842 136 328
Diluted earnings per share (cents)
Earnings (88.6%) 0.92 8.06
Headline earnings (88.6%) 0.95 8.28
Weighted average number of shares in issue
for diluted earnings ('000) 138 406 138 486
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
30 September 30 September
2019 2018
$'000 $'000
Cash flows from operating activities 9 521 15 997
Cash generated by operations 15 801 23 997
Net finance costs (2 679) (806)
Changes in working capital (3 203) (6 881)
Taxation paid (398) (313)
Cash flows from investing activities (18 107) (35 552)
Business combinations and disposals - (12 980)
Investments disposed of/(purchased) 300 (1 320)
Dividends received 893
Decrease/(increase) in non-current receivables 378 (207)
Proceeds from insurance recovery 30 -
Intangible assets
- Disposals - 1 050
Property, plant and equipment
- Additions (19 708) (22 095)
Cash flows from financing activities (36 190) (872)
Debt issuance costs (638) (188)
Dividends paid - (6 979)
Net funding (repaid)/raised (35 552) 6 295
Decrease in cash and cash equivalents (44 776) (20 427)
Cash and cash equivalents
At the beginning of the period 47 810 29 172
Foreign exchange differences (1) (11)
At the end of the period 3 033 8 734
Bank balances and deposits 3 033 8 734
Cash and cash equivalents 3 033 8 734
NOTES
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the period ended 30 September 2019 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 2019. The Company adopted IFRS 16 in the current period, which resulted in
the Company recording a $1.0 million operating lease right-of-use asset and liability at the
beginning of the period. These amounts were recognised in accordance with the transitional
provisions of IFRS 16, in terms of which comparative results do not need to be restated.
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 KA van Asdalan (CPA).
RESTATEMENT OF PRIOR-PERIOD RESULTS
Acquisition of Pico Energy, LLC
The acquisition of 100% of Pico Energy, LLC ("Pico") on 21 September 2018 qualified as a business
combination in terms of IFRS 3: Business Combinations. The results as at 30 September 2018 and
31 March 2019 were determined based on all information available at the acquisition date
("provisional accounting"). The provisional accounting was adjusted in the current period for new
information obtained within a timeframe of 12 months after the acquisition date. These adjustments
to the fair values determined in the provisional purchase price allocation are treated as
adjustments to the comparative results as at 30 September 2018 and 31 March 2019.
The comparative results were restated as follows:
Statement of financial position as at 30 September 2018:
Goodwill increased by $0.06 million
Property, plant and equipment increased by $1.19 million
Intangible assets decreased by $2.84 million
Inventories decreased by $0.15 million
Trade and other receivables decreased by $0.12 million
Trade and other payables decreased by $0.08 million
Other non-current financial liabilities decreased by $1.78 million
Statement of financial position as at 31 March 2019:
Goodwill decreased by $0.08 million
Other non-current financial liabilities decreased by $0.08 million
Opening equity attributable to equity holders of the parent in the current period was unaffected.
RESULTS
OPERATING HIGHLIGHTS
Six months ended
30 September 30 September
2019 2018
millions, unless indicated
RNG Total Revenues $40.6 $42.6
REG Total Revenues $9.8 $8.7
FY2020 RNG production volumes (MMBtu) 2.8 2.2
Less: FY2020 RNG volumes under fixed/floor-price contracts (1.0) (1.0)
Plus: FY2019 RNG volumes dispensed in FY2020 0.3 0.2
Less: FY2020 RNG production volumes not dispensed (0.3) (0.3)
Total RNG volumes available for RIN generation 1.8 1.1
FY2020 RIN generation (x 11.727) 20.6 13.3
Less: Counterparty share (RINs) (1.6) (2.8)
Plus: FY2019 RINs carried into FY2020 1.8 0.6
Total RINs available for sale 20.8 11.1
Less: RINs sold (17.6) (8.8)
RIN inventory 3.2 2.4
RNG inventory (volumes not dispensed for RINs) 0.3 0.3
REG volumes produced (MWh) 0.1 0.1
Average realised price $/MWh (actual) $82.54 $76.55
Operating expenses
RNG operating expenses $23.3 $16.2
$/MMBtu (actual) $8.41 $7.28
REG operating expenses $6.9 $5.4
$/MWh (actual) $57.66 $47.33
CONSOLIDATED INCOME STATEMENT
The Company produced approximately 2.8 million MMBtu of renewable natural gas ("RNG") volumes for
the six months ended 30 September 2019, compared to 2.2 million MMBtu of RNG volumes for the
six months ended 30 September 2018. The increase in RNG volumes is driven by the continued
optimisation of two RNG facilities commissioned during FY2019.
Revenues from the Company's RNG segment decreased by approximately $2.0 million, or 4.6%, for the
six months ended 30 September 2019 from the prior-year comparable period. The average index pricing
impacting the Company's gas commodity revenues for the six months ended 30 September 2019 was 14.6%
lower than the prior-year comparable period. During the six months ended 30 September 2019 the
Company self-marketed 17.6 million RINs, an 8.8 million increase from the prior-year comparable
period. The increase was driven by two new RNG facilities commencing operations during FY2019.
Average pricing realised on RIN sales during the six months ended 30 September 2019 was 46.1% lower
than average pricing realised in the prior-year comparable period. At 30 September 2019 the Company
had approximately 3.2 million RINs generated and unsold in inventory and 0.3 million of MMBtus
produced and not dispensed. For the six months ended 30 September 2019, 25.2% of RNG segment
revenues were derived from the monetisation of RNG volumes at fixed prices as compared to 27.0%
during the prior-year period.
The Company produced approximately 0.1 million MWh in renewable electric generation ("REG") volumes
for the six months ended 30 September 2019, unchanged from the prior-year comparable period.
Revenue from the Company's REG facilities increased by approximately $1.2 million, or 13.4%, for
the six months ended 30 September 2019 from the prior-year comparable period. For the six months
ended 30 September 2019, 93.5% of REG segment revenues were derived from the monetisation of REG
volumes at fixed prices as compared to 90.8% during the prior-year period.
Expenses for the Company's RNG facilities increased 44.1% for the six months ended 30 September 2019
from the prior-year comparable period. The increase is primarily attributed to two new RNG
facilities commencing operations during FY2019. Expenses for the Company's REG facilities
increased approximately $1.5 million (28.1%) compared to the prior comparative period. The increase
is attributed to the Pico acquisition and timing of lifecycle maintenance on major equipment.
The Company recognised gains of approximately $0.3 million related to its hedging programmes for the
six months ended 30 September 2019, compared to immaterial losses in the prior-year comparable period.
For the six months ended 30 September 2019 the Company incurred approximately $0.2 million in
transaction costs and losses on disposals of assets. For the six months ended 30 September 2018
the Company incurred losses on disposal of assets of approximately $0.2 million and recognised
gains on the sales of emission allowances of approximately $0.9 million.
On 14 December 2018 the Company entered into the Second Amended and Restated Credit Agreement
(the "Syndication Agreement") amongst the Company, its primary commercial bank and a five-bank
syndication. The Company entered into a new $95.0 million term loan and repaid approximately
$52.5 million in outstanding borrowings. The Company incurred increased financing costs related
to higher outstanding borrowings.
For the six months ended 30 September 2018 the Company calculated and recorded an impairment
loss of $0.9 million. The impairment loss was due to the pending conversion of certain REG
facilities to RNG facilities and the continued deterioration in market pricing for electricity
and calculated based upon replacement cost and pre-tax cash flow projections.
For the six months ended 30 September 2019 the Company recognised $0.2 million in tax expense,
as compared to $3.4 million recognised in the prior-year comparable period. The decrease in tax
expense is primarily attributable to accelerated tax depreciation on development project assets
placed into service. Approximately $3.0 million of the $3.4 million tax expense recognized for
the six months ended 30 September 2018 was off-set against the Company's deferred tax asset.
During the six months ended 30 September 2019 the Company entered into an agreement to sell
Red Top to its 20% owner for $0.3 million. Terms of the sale included the distribution of
approximately $0.9 million in fixed assets to the Company. After this distribution the Company
recorded a gain of approximately $0.1 million. The Company continued to classify the $0.9 million
of fixed assets as held for sale at 30 September 2019. Included in cash flows from investing
activities in the six months ended 30 September 2018 was approximately $13.0 million for the
Pico Energy acquisition and approximately $1.3 million in capital contributions to the
Red Top investment.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND CASH FLOW
At 30 September 2019 total cash and cash equivalents were $3.0 million, a decrease of $44.8 million
from 31 March 2019. The Company intends to fund its near-term development projects from cash flows
from operations and borrowings under its revolving credit facility. The Company believes it will
have sufficient cash flows from operations and borrowing availability under its credit facility to
meet its debt service obligations and anticipated required capital expenditures (including for
projects under development) for at least the next 12 months. The Company is subject to business
and operational risks that could affect its cash flows and liquidity.
On 14 December 2018 the Company entered into the Second Amended and Restated Credit Agreement
(the "Syndication Agreement") amongst the Company, its primary commercial bank and a five-bank
syndication. The Syndication Agreement amends and restates in its entirety the Amended and
Restated Revolving Credit And Term Loan Agreement ("Agreement"), dated as of 4 August 2017,
as amended on 14 August 2018, between the Company and a commercial bank and the Credit Agreement
("Subsidiary Agreement"), dated as of 4 August 2017, as amended on 30 July 2018, between Bowerman
Power LFG, LLC, a fully consolidated subsidiary of the Company, and a commercial bank. Borrowings
under the Syndication Agreement term loan were used to fully satisfy approximately $28.2 million
outstanding borrowings under the Agreement and approximately $24.3 million in outstanding
borrowings under the Subsidiary Agreement. The Syndication Agreement provided for a $95.0 million
term loan maturing in December 2023. The Company capitalised $1.5 million in new debt issuance
costs which will be amortised over the term of the agreement.
On 21 March 2019 the Company entered into the first amendment to the Syndication Agreement.
This amendment clarified a variety of terms, definitions, and calculations in the underlying
agreement. On 28 August 2019 the Company received a waiver for a Specified Event of Default,
as defined in the Syndication Agreement, for the period from 31 August 2019 to 1 October 2019.
This waiver related to one Specified Event of Default and was temporary in nature. Effective
12 September 2019 the Company entered into the second amendment to the Syndication Agreement.
Among other matters, the second amendment redefined the Fixed Charge Coverage Ratio, reduced the
revolving credit facility to $80.0 million, redefined the Total Leverage Ratio and eliminated the
RIN Floor (as defined) as a Specified Event of Default. In connection with the second amendment,
the Company paid down the outstanding term loan by approximately $38.3 million and the resulting
quarterly principal installments were reduced to $2.5 million. The Company borrowed approximately
$12.2 million against its revolving credit facility commensurate with the closing of this amendment.
The Company incurred $0.6 million in debt issuance costs of which $0.4 million was expensed.
At 30 September 2019 the Company had debt before debt issuance costs of $54.7 million, compared
to debt before debt issuance costs of $90.3 million at 31 March 2019. The Amended Credit Agreement
is for a term of five years and matures in December 2023. Of the total Company borrowings outstanding
at 30 September 2019, $10.0 million is currently due within the next 12 months.
The following table presents information regarding the Company's cash flows and cash equivalents
(in millions) for the six months ended 30 September 2019 and 2018:
2019 2018
$ millions $ millions
Net cash flows from operating activities 9.5 16.0
Net cash flows from investing activities (18.1) (35.6)
Net cash flows from financing activities (36.2) (0.8)
Net increase in cash and cash equivalents (44.8) (20.4)
Cash and cash equivalents, end of the period 3.0 8.7
The Company generated approximately $9.5 million of cash from operating activities, a decrease from
prior period of $6.5 million. This decrease is primarily due to lower RIN pricing, partially off-set
by increased RIN volumes from two new RNG facilities commencing operations during FY2019.
The Company's net cash flows used from investing activities has historically focused on project
development and facility maintenance. For the six months ended 30 September 2019 capital
expenditures were approximately $19.7 million, of which approximately $13.7 million related to
costs for the construction of two landfill RNG facilities and one digester RNG facility. For the
six months ended 30 September 2018 capital expenditures were approximately $22.1 million, of which
approximately $19.5 million related to costs for the construction of four landfill RNG facilities.
Included in cash flows from investing activities in the six months ended 30 September 2018 was
approximately $13.0 million for the Pico Energy acquisition and approximately $1.3 million in
capital contributions to the Red Top investment.
Net cash flows from financing activities of $36.2 million for the six months ended 30 September 2019
decreased by $35.3 million over the prior-year six-month period, primarily due to net funding
repaid of $35.6 million. During the six months ended 30 September 2018 net funding raised of
$6.3 million was off-set by $7.0 million in dividends paid.
EXECUTIVE OFFICER'S REPORT
The RNG industry continues to be challenged by economic headwinds, primarily through the price
collapse of the cellulosic biofuel Renewable Identification Number ("D3 RIN"). Montauk remains
focused on and excited over opportunities to continue the optimisation and expansion of its
portfolio through disciplined investment strategies and operational excellence.
In August 2019, the Environmental Protection Agency ("EPA") exempted 31 small refineries from
complying with the 2018 Renewable Fuel Standard ("RFS"), resulting in the addition of approximately
21 million D3 RINs to the market supply. Over the last three years 85 small refinery exemptions
("SREs") have contributed approximately 60 million D3 RINs to a significant oversupply issue,
driving downward pressure on D3 RIN pricing. On 15 October 2019 the EPA released a supplemental
proposal to the 2020 RFS volume rule making, seeking comments on the EPA's proposed methodology
to calculate future SREs. The limited visibility the proposal provided on how exempted volumes
will be accounted for in the RFS and the increasing likelihood that the final 2020 renewable volume
obligations ("RVO") could be delayed beyond the 30 November statutory date appear contributory to
the D3 RIN price stagnation.
Though Montauk has measurably increased the size of its portfolio, and volume production to the
RNG industry, it remains nimble in its approach to operations. Whereas production costs of RNG are
inherently higher than those of fossil fuel-based energy products, those costs are generally more
than off-set by the market value of RNG. In response to economic conditions where the market value
of RNG challenges that cost-benefit relationship, the Company proactively identifies variables in
its maintenance programmes that can disproportionately reduce operating costs in relation to
potential resulting decreases in production, while minimising impacts to the longevity of its
operating assets. Portfolio reinvestment, development and acquisition opportunities are evaluated
using realistic commodity and attribute price expectations, ensuring both profitability and
compliance with all debt service obligations. Transparent and communicative relationships with our
credit facility partners enable us to continuously structure our debt to meet the current needs
of the business while providing sufficient resources for growth opportunities. Montauk's continued
ability to achieve strong, positive EBITDA and service its debt obligations in these challenging
economic times is testament to the strength of our business model. Average D3 RIN pricing since
30 September 2019 has increased approximately 7%. Though this trend is not necessarily indicative
of future pricing, Montauk remains optimistic the same actions taken to ensure profitability and
financial stability during the recent downturn well-positions the Company to maximise the benefit
of current and future increases in pricing.
Development update
In April 2018 the Company entered into an agreement with one of its existing landfill counterparties
to build, own and operate an RNG facility at the Galveston County Landfill located in Santa Fe,
Texas for a term of 20 years from commercial operation. We are pleased to announce that this new
RNG facility commenced Commercial Operations in October 2019 and the output is contracted for use
in the transportation sector to allow for the generation of RINs under the RFS.
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 the Coastal Plains Landfill located in Alvin, Texas for a term of
20 years from commercial operation. Upon commercial operation, the output from this new RNG facility
will be contracted for use in the transportation sector to allow for the generation of RINs under
the RFS. Commercial Operation at this RNG project remains targeted to commence in the fourth quarter
of the 2020 financial year.
In September 2018 the Company acquired 100% of the membership interests of Pico Energy, LLC, which
was the owner of a manure digester, two Jenbacher engine generators and a manure supply agreement
with a large dairy farm in Jerome, Idaho. The Company plans to convert this existing electricity
generating project by building, owning and operating an RNG facility at a dairy farm for a term of
20 years from execution of the manure supply agreement. Upon commercial operation the output from
this new RNG facility will be contracted for use in the transportation sector to allow for the
generation of RINs under the RFS programme and Low Carbon Fuel Standard ("LCFS") credits under the
California LCFS programme. Commercial operation at this RNG project is targeted to commence in the
fourth quarter of the 2020 financial year.
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 six months ended 30 September 2019 or its financial position on that date.
CHANGES IN DIRECTORATE
Mr ML Ryan resigned as Chief Executive Officer and executive director effective 30 September 2019.
Mr SF McClain was appointed as Chief Executive Officer effective 1 October 2019 and
Mr KA van Asdalan as Chief Financial Officer and executive director effective 1 October 2019.
DIVIDEND TO SHAREHOLDERS
The directors have resolved not to declare an interim dividend to focus financial resources on the
continued development of the Company's operations portfolio.
Copies of this announcement may also be requested by e-mail at info@montaukenergy.com and are
available at the Company's registered office at no charge, weekdays during office hours.
The JSE link is as follows: https://senspdf.jse.co.za/documents/2019/jse/isse/MNKE/interims.pdf
For and on behalf of the board of directors
JA Copelyn SF McClain KA Van Asdalan
Chairman Chief Executive Officer Chief Financial Officer
Cape Town
1 November 2019
Directors: JA Copelyn (Chairman)*, SF McClain (Chief Executive Officer)#, KA van Asdalan
(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: 01/11/2019 05:15:00
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