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MONTAUK HOLDINGS LIMITED - Reviewed results for the year ended 31 March 2019

Release Date: 09/05/2019 11:45
Code(s): MNK     PDF:  
 
Wrap Text
Reviewed results for the year ended 31 March 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")


REVIEWED RESULTS FOR THE YEAR ENDED 31 MARCH 2019


CONSOLIDATED STATEMENT OF FINANCIAL POSITION        
                                                                             Reviewed       Audited
                                                                             31 March      31 March
                                                                                 2019          2018
                                                                                $'000         $'000
ASSETS                  
Non-current assets                                                            197 710       162 883 
Property, plant and equipment                                                 165 243       130 396 
Goodwill                                                                          140             -  
Other non-current financial assets                                                487           527 
Intangibles                                                                    23 153        19 275 
Deferred taxation                                                               7 722        11 742 
Non-current receivables                                                           965           943 
                  
Current assets                                                                 64 167        39 832 
Inventories                                                                     4 505         2 603 
Other current financial assets                                                    391            29 
Trade and other receivables                                                    11 461         8 028 
Bank balances and deposits                                                     47 810        29 172 
                  
Non-current assets held for sale                                                1 096             -
Total assets                                                                  262 973       202 715 

EQUITY AND LIABILITIES                  
Equity                                                                        151 460       141 605 
Equity attributable to equity holders of the parent                           151 460       141 605 
                  
Non-current liabilities                                                        78 264        41 544 
Borrowings                                                                     69 975        36 208 
Long-term provisions                                                            7 505         5 336 
Other non-current financial liabilities                                           784             - 
                       
Current liabilities                                                            33 249        19 566 
Trade and other payables                                                       13 408        10 342 
Other current financial liabilities                                               290           129 
Current portion of borrowings                                                  18 279         6 699 
Taxation                                                                          468           742 
Provisions                                                                        803         1 654                 
Total equity and liabilities                                                  262 973       202 715
 
Net asset carrying value per share (cents)                                        111           104 



CONSOLIDATED INCOME STATEMENT                                   
                                                                             Reviewed       Audited
                                                                             31 March      31 March
                                                                      %          2019          2018
                                                                 change         $'000         $'000
Revenue                                                            9.0%       118 975       109 149 
Expenses                                                                      (69 156)      (55 826)
EBITDA                                                            (6.6%)       49 819        53 323 
Other income                                                                    1 290         3 537 
Depreciation and amortisation                                                 (17 652)      (14 905)
Operating profit                                                               33 457        41 955          
Investment income                                                                  79            42 
Finance costs                                                                  (4 924)       (2 074)
Loss on extinguishment of borrowings                                                -        (1 611)
Share of losses of joint ventures                                                (224)            -
Asset impairments                                                              (2 375)            -
Profit before taxation                                           (32.1%)       26 013        38 312 
Taxation                                                                       (5 888)      (16 037)
Profit for the year                                                            20 125        22 275 
                        
Attributable to:                        
Equity holders of the parent                                                   20 125        22 275 



CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME        
                                                                             Reviewed       Audited
                                                                             31 March      31 March
                                                                                 2019          2018
                                                                                $'000         $'000
Profit for the year                                                            20 125        22 275 
Other comprehensive income:                  
Items that may be reclassified subsequently to profit or loss                   
Foreign currency translation differences                                          464           109 
Total comprehensive income                                                     20 589        22 384 
                  
Attributable to:                  
Equity holders of the company                                                  20 589        22 384 


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                             Reviewed       Audited
                                                                             31 March      31 March
                                                                                 2019          2018
                                                                                $'000         $'000
Balance at the beginning of the year                                          141 605       122 729 
Current operations                  
Total comprehensive profit                                                     20 589        22 384 
Equity-settled share-based payments                                               605           701 
Dividends                                                                     (11 339)       (4 209)
Balance at the end of the year                                                151 460       141 605 


RECONCILIATION OF HEADLINE EARNINGS
                                                         Reviewed year ended     Audited year ended
                                                            31 March 2019           31 March 2018
                                                        %        $'000                  $'000
                                                   change    Gross      Net        Gross      Net
Earnings attributable to equity holders                                     
  of the parent                                     (9.7%)           20 125                22 275 
Losses on disposal of plant and equipment                      181      143          147      124 
Impairment of plant and equipment                            2 375    1 754            -        -   
Gain on disposal of intangible assets                         (872)    (688)        (562)    (315)
Loss on disposal of assets held for sale                         -        -          449      441 
Headline profit                                     (5.3%)           21 334                22 525 
                                    
Basic earnings per share (cents)                                    
Earnings                                            (9.9%)            14.76                 16.39 
Headline earnings                                   (5.6%)            15.65                 16.57 
                                    
Weighted average number of shares in issue ('000)                   136 337               135 940 
Actual number of shares in issue at the end of the 
  year (net of treasury shares and shares issued in 
  respect of restricted stock plan) ('000)                          136 842               136 328 
                                    
Diluted earnings per share (cents)                                    
Earnings                                            (9.9%)            14.58                 16.18 
Headline earnings                                   (5.6%)            15.46                 16.37 
                                    
Weighted average number of shares in issue ('000)                   138 009               137 640 


CONSOLIDATED STATEMENT OF CASH FLOWS                              
                                                                             Reviewed       Audited
                                                                             31 March      31 March
                                                                                 2019          2018
                                                                                $'000         $'000
Cash flows from operating activities                                           38 701        48 105 
Cash generated by operations                                                   52 563        59 219 
Net finance costs                                                              (3 212)       (2 202)
Changes in working capital                                                     (7 533)       (7 626)
Taxation paid                                                                  (3 117)       (1 286)
                  
Cash flows from investing activities                                          (54 147)      (28 238)
Business combinations and disposals                                           (12 980)            - 
Investments disposed of                                                             -         7 759 
Investment in joint ventures                                                   (1 320)            -
(Increase)/decrease in non-current receivables                                    (22)          270 
Proceeds from insurance recovery                                                  401           350 
Intangible assets                     
- Additions                                                                      (100)         (951)
- Disposals                                                                     1 050         1 964 
Property, plant and equipment                    
- Additions                                                                   (41 176)      (37 920)
- Disposals                                                                         -           290 
                  
Cash flows from financing activities                                           33 623       (10 429)
Debt issuance costs                                                            (2 101)         (814)
Debt extinguishment costs                                                           -        (1 127)
Dividends paid                                                                (11 339)       (4 209)
Net funding raised/(repaid)                                                    47 063        (4 279)
                      
Increase in cash and cash equivalents                                          18 177         9 438 
Cash and cash equivalents                   
At the beginning of the year                                                   29 172        19 622 
Foreign exchange differences                                                      461           112 
At the end of the year                                                         47 810        29 172 
                  
Bank balances and deposits                                                     47 810        29 172 



NOTES

BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the year ended 31 March 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 2018. The Company adopted IFRS 9 and IFRS 15 in the current year, which did 
not have an impact on the consolidated results. 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).

AUDITOR'S REVIEW
These condensed consolidated financial statements for the year ended 31 March 2019 have been 
reviewed by BDO South Africa Inc., who expressed an unmodified review conclusion.

A copy of the auditor's review report is available for inspection at the Company's registered office 
together with the financial statements identified in the auditor's report. The auditor's report does 
not necessarily report on all of the information contained in this announcement. Shareholders are 
therefore advised that, in order to obtain a full understanding of the nature of the auditor's 
engagement, they should obtain a copy of the auditor's report together with the accompanying 
financial information from the issuer's registered office.


RESULTS

OPERATING HIGHLIGHTS
                                                                                 Year          Year
                                                                                ended         ended
                                                                             31 March      31 March
                                                                                 2019          2018
Millions, unless indicated            
RNG total revenues                                                    $         100.3          89.9 
REG total revenues                                                    $          18.6          19.2 
            
RNG volumes produced (MMBtu)                                                      4.8           3.9 
RNG volumes monetised under fixed-price and margin share contracts                1.9           2.0 
RNG volumes available for RIN generation                                          2.9           1.9 
RNG volumes dispensed for RIN generation in the current FY                        2.6           1.7 
RNG volumes dispensed for RIN generation in the subsequent FY                     0.3           0.2 
            
RINs generated during the fiscal year                                            32.7          22.0 
RINs transferred in-kind during the fiscal year                                   5.5           9.1 
RINs purchased during the fiscal year                                               -           0.9 
RINs monetised during the fiscal year                                            25.9          17.2 
Average realised price $/RIN (actual)                                 $          1.93          2.66 
Generated and non-monetised RINs carried  the over to next fiscal year            1.8           0.6 
            
REG volumes produced (MWh)                                                        0.2           0.3 
Average realised price $/MWh (actual)                                 $         76.79         66.12 
            
Operating expenses            
RNG operating expenses                                                $          42.4          31.6 
$/MMBtu (actual)                                                      $          8.80          8.12 
            
REG operating expenses                                                $          12.3          13.7 
$/MWh (actual)                                                        $         50.54         47.15 


CONSOLIDATED INCOME STATEMENT
The Company produced 4.8 million MMBtus of renewable natural gas ("RNG") volumes during FY 2019, 
compared to 3.9 million MMBtus of RNG volumes during FY 2018. The increase in RNG volumes is driven 
by two new RNG facilities commencing operations in FY 2019. 

Revenues from the Company's RNG segment increased by $10.4 million or 11.6% for FY 2019 from the 
prior year. The weighted average index pricing impacting the Company's gas commodity revenues for 
the year ended 31 March 2019 was 10.0% higher than the prior year. During FY 2019 the Company 
self-marketed 25.9 million RINs, an 8.7 million increase from the prior year. The increase was 
driven by two new RNG facilities commencing operations in FY 2019. Average pricing realised on 
RIN sales during FY 2019 was 28.2% lower than average pricing realised in the prior year, primarily 
attributed to a decrease in the D5 RIN pricing. In FY 2019 D5 RIN prices averaged approximately 
$0.43 per RIN, compared to $0.96 per RIN in FY 2018. At 31 March 2019 the Company had approximately 
1.8 million RINs generated and unsold in inventory and 0.3 million of MMBtus produced and not 
dispensed, approximately 1.2 million more RINs and 0.1 million MMBtus, respectively, than at 
31 March 2018. For FY 2019, 20.3% of RNG segment revenues were derived from the monetisation of 
RNG volumes at fixed prices.

The Company produced 0.2 million MWh in renewable electric generation ("REG") volumes, a decrease 
of 16.6% over the prior year. Revenue from the Company's REG facilities decreased by $0.6 million 
or 3.1% for FY 2019 from the prior year. The volume and revenue decrease are primarily attributed 
to the conversion of the Atascocita REG facility to an RNG facility during FY 2019 and the run-to-
failure operations of the Coastal Plains REG facility, pending its conversion to an RNG facility. 
For FY 2019, 83.7% of REG segment revenues were derived from the monetisation of REG volumes at 
fixed prices. 

Expenses for the Company's RNG facilities increased 34.1% for FY 2019 from the prior year. 
The increase is primarily attributed to two new RNG facilities commencing operations in FY 2019. 
Expenses for the Company's REG facilities decreased 11.9% for FY 2019 from the prior year. 
The decrease is largely attributed to non-capitalisable optimisation costs for the Bowerman 
electricity generation facility in FY 2018. The Company recognised losses of approximately 
$0.3 million related to its hedging programmes for the year ended 31 March 2019, compared to gains 
of approximately $0.2 million in the prior year.

In FY 2019 the Company received approximately $0.4 million in business interruption insurance 
proceeds related to a forced interconnection curtailment at the Bowerman Power REG facility. 
Also, during FY 2019, the Company recognised a gain on the sale of emission allowances of 
approximately $0.9 million. These gains were partially off-set by losses on disposal of assets of 
approximately $0.2 million. 

During FY 2018 the Company realised a gain of $2.6 million, attributable to one-time settlement 
proceeds from arbitration, and recognised $1.6 million in expenses related to the early extinguishment 
of debt. Total cash paid associated with debt extinguishment was $1.1 million. 

The Company calculated and recorded an impairment loss during FY 2019 of $2.4 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 FY 2019 the Company recognised $5.9 million in tax expense, of which $4.0 million was off-set 
against the Company's deferred tax asset. For FY 2018 the Company recognised $16.0 million in 
tax expense, of which $14.7 million was off-set against the Company's deferred tax asset. 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND CASH FLOW
At 31 March 2019 and 2018 the total of our cash and cash equivalents was $47.8 million and 
$29.2 million, respectively. The Company intends to fund its near-term development projects from 
cash flows from operations and borrowings under the revolving credit facility. The Company believes 
that it will have enough 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 24 months. However, 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 Revolving Credit and 
Term Loan Agreement, which provides for a five-year $95.0 million term loan and a $90.0 million 
five-year revolving credit facility (the "Amended Credit Agreement"). The term loan issued pursuant 
to the Amended Credit Agreement is payable in quarterly instalments through its maturity and has 
a hedged interest rate, currently effective at 5.24%. Borrowings under the Amended Credit Agreement 
are secured by substantially all of the Company's assets. The Amended Credit Agreement replaces, 
in its entirety, the existing Credit Agreement dated 4 August 2017, which was composed of a 
three-year term loan in the amount of $20.0 million and a three-year revolving credit facility in 
the amount of $20.0 million. The Amended Credit Agreement also replaces the existing Subsidiary 
Agreement, dated 4 August 2017, which was composed of a five-year term loan of $27.5 million and a 
five-year revolving credit facility in the amount of $10.0 million. The proceeds from the Amended 
Credit Agreement were used to repay all of the indebtedness outstanding under the existing Credit 
Agreement and Subsidiary Agreement at 14 December 2018. The Company incurred approximately 
$1.0 million in third-party financing fees and approximately $0.9 million in lender fees. The Company 
accounted for the refinancing as a modification of its existing debt and expensed approximately 
$0.4 million in lender fees.

At 31 March 2019 the Company had debt before debt issuance costs of $90.3 million, compared to 
debt before debt issuance costs of $43.5 million at 31 March 2018. The Amended Credit Agreement is 
for a term of five years and matures in December 2023. Of the total Company borrowings outstanding 
at 31 March 2019, $19.0 million is currently due within the next 12 months. At 31 March 2019 the 
effective borrowing rate on amounts outstanding was 5.36% on the Company's commercial bank facilities. 

The following table presents information regarding the Company's cash flows and cash equivalents 
(in thousands) for the year ended 31 March 2019 and 2018:

                                                                                 2019          2018
                                                                                $'000         $'000
Net cash flows provided by operating activities                                38 701        48 105 
Net cash flows used in investing activities                                   (54 147)      (28 238)
Net cash flows used in financing activities                                    33 623       (10 429)
Net increase in cash and cash equivalents                                      18 177         9 438
Cash and cash equivalents at the end of the year                               47 810        29 172 

The historical cash flows shown above illustrate the Company has consistently generated positive 
cash flows from operations. However, for FY 2019 the Company generated $38.7 million of cash from 
operating activities, a decrease from the prior year of $9.4 million. This decrease is primarily due to 
lower RIN pricing partially off-set by the profitable operations of two new RNG facilities commencing 
operations in FY 2019. The Company's net cash flows used in investing activities has historically 
focused on project development and facility maintenance. For FY 2019 capital expenditures were 
$41.3 million, of which $14.6 million related to costs for the construction of the Galveston 
RNG facility, $10.5 million related to costs for the construction of the Coastal Plains RNG facility 
and $9.0 million related to costs for the construction and commissioning of the Atascocita and 
Apex RNG facilities. For FY 2018 capital expenditures were $38.7 million, of which $19.7 million 
related to the construction of the Atascocita RNG facility and $12.2 million related to costs for 
the construction of the Apex RNG facility. Net cash flows provided by financing activities of 
$33.6 million for FY 2019 increased by $44.1 million over the prior year, primarily due to net 
funding raised of $47.1 million. This increase was partially off-set by dividends paid in the fiscal 
year of $11.3 million, an increase of $7.1 million from the prior year.

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 $15.0 million in cash and contingent 
consideration.

The following table presents the allocation of the aggregate purchase price based on estimated fair 
values and adjustments made during the measurement period:

                                                                                  Provisional as at 
                                                  Preliminary        Adjustments      31 March 2019
In thousands ($'000)      
Goodwill                                                    -                140                140
Property, plant and equipment                          11 031              1 185             12 216
Intangibles                                             5 219             (2 836)             2 383
Inventories                                               390               (149)               241
Trade and other receivables                               120               (120)                 -
Trade and other payables                                  (80)                80                  -
Net assets acquired                                    16 680             (1 700)            14 980
Net cash outflow on acquisition                        12 980                  -             12 980
Contingent consideration                                3 700             (1 700)             2 000

As of 31 March 2019 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 amount of $0.7 million in revenues and pre-tax loss of 
$0.7 million related to the acquisition are included in the consolidated income statement for the 
year ended 31 March 2019. Had the acquisition occurred on the first day of the financial year 
an immaterial amount of revenues and pre-tax profit would have been included in the consolidated 
income statement.

EXECUTIVE OFFICER'S REPORT
At Montauk we are very proud to be an industry leader in the provision of fully integrated solutions 
for the management, recovery and conversion of biogas from waste sources into renewable energy. 
Montauk's industry is at the forefront of the sustainability movement through the capture and 
beneficial use of organically generated methane. Methane, with a global warming potential 25 times 
greater than CO2, is a potent greenhouse gas that is a key contributor to global climate change. 
The Company captures methane, preventing it from being released into the atmosphere, and converts 
it into pipeline quality renewable natural gas ("RNG") for use as either a vehicle fuel (ultimately 
in the form of compressed natural gas ("CNG") or liquified natural gas ("LNG")), or for electricity 
generation. 

Business overview
The business, with all of its social and environmental benefits, is challenging at times due to high 
capital costs, environmental attribute pricing volatility and the variable nature of the biogas 
derived from organic waste that we collect and process. The production costs of RNG are inherently 
higher than fossil fuel-based energy products such as natural gas due to the additional steps 
required to process the biogas; however, the costs are generally more than off-set by the market 
value of our renewable energy products, which can be significantly more than the market 
value of the comparable non-renewable energy. Factors such as climate, waste intake and waste 
composition all impact the quality and quantity of the biogas feedstock required for production of 
the RNG. Montauk's extensive experience and expertise in designing, constructing, operating and 
maintaining process facilities enables us to optimise the production of RNG across our portfolio.

The pricing of the various types of renewable energy produced by the Company is an ever-changing 
balance between the underlying energy commodity price and any associated environmental attribute 
premiums that can be realised. With electricity and natural gas commodity pricing in the US having 
been depressed for several years, while still maintaining a relatively high degree of short-term 
volatility (due to weather, supply and demand, and other market forces), the premiums associated 
with the various environmental attributes are currently the driving factor in the profitability 
of the business. 

The market prices of D3 cellulosic Renewable Identification Numbers ("RINs") softened during the 
third and fourth quarters of FY 2019 largely due to a number of factors. The cellulosic industry 
produced 312.3 million D3 RINs in calendar 2018 compared to the Renewable Volume Obligation ("RVO") 
of 288 million. The RNG industry was responsible for generating 97% of those D3 RINs. While these 
production numbers evidence the continuing growth and viability of the industry, overproduction 
relative to the RVO has an adverse impact on pricing in that vintage year. During 2018 the 
United States Environmental Protection Agency ("EPA") granted a record number (35) of small refinery 
exemptions for 2017 which resulted in additional volumes of vintage 2017 RINs being carried forward 
by obligated parties into 2018, negatively impacting demand. In December 2018 the EPA announced the 
cellulosic waiver credit ("CWC") pricing for 2019 would be $1.77, a drop from the $1.96 CWC in 2018, 
disincentivising carry-forwards of 2018 vintage D3 RINs into 2019.

Our focus will continue to be to position the Company and its facilities to capitalise on and 
leverage the opportunities that develop in the renewable energy markets. The evolving federal and 
state regulatory environments mandating the use of renewable fuels can lead to opportunities that 
allow existing projects to capture additional premiums as they become available. To that end 
the Company plans to remain flexible in its offtake contract strategy with the goal of capturing 
and maximising value from these programmes.

Operations
When a new RNG facility commences commercial operation, there is a period when a facility may 
experience technical issues that are characteristic of our industry as it ramps up production. 
In FY 2019 the Company commenced commercial operation of the Atascocita RNG facility located in 
Humble, Texas and the Apex RNG facility in Amsterdam, Ohio. Both facilities encountered these 
types of challenges related to the processing facility and landfill gas collection and control 
system ("GCCS") that extended the time it took each RNG facility to reach full steady-state 
production. The Company believes the underlying causes of the technical issues have now been fully 
identified and are either completely resolved or are in the process of being addressed. 

Montauk uses a three-year trailing average of landfill gas production as part of its forecast of 
GCCS output for each subsequent financial year, including monthly sculpting for seasonal impacts on 
landfill gas generation and collection. In financial year 2019 the winter was unusually cold and 
wet, particularly compared to many of the previous financial years which were uncharacteristically 
mild. In addition, day-to-night temperature fluctuations affect GCCS components and cause swings in 
gas quality which creates the need for continuous GCCS tuning. Unusually heavy precipitation also 
affected the accessibility of the well field to accomplish this tuning. These factors impacted biogas 
production for the financial year, especially for Montauk's facilities located in the Northeastern US.

Environmental Attribute Programmes

Renewable Fuel Standard ("RFS")
RNG derived from landfill methane, agricultural digesters and waste water treatment facilities that 
is used as a vehicle fuel qualifies as a D3 cellulosic RIN under the EPA's Renewable Fuel Standard 
programme. The RFS is a federal programme administered by the EPA requiring transportation fuel 
sold in the US to contain a minimum volume of renewable fuel. Under the RFS, refiners and importers 
of gasoline or diesel fuel are obligated to blend renewable fuels into transportation fuel to meet 
an EPA-specified RVO. RINs are compliance units for fuel blenders, created as part of the RFS to 
promote renewable fuel utilisation for the purpose of achieving significant greenhouse gas ("GHG") 
reductions, reducing imported petroleum and developing the renewable fuel sector in the US. 
One million Btus ("MMBtu") of RNG represents approximately 11.7 RINs. The RFS programme does not have 
a sunset date and remains in effect absent Congressional action to repeal it. The Company has 
participated in the programme since 2014 and looks for opportunities to increase its participation in 
the RFS programme as production from RNG facilities becomes available, through the development of 
additional RNG projects or acquisitions. While the RFS allows RNG produced anywhere in the US to qualify 
and potentially offer premiums significantly in excess of commodity prices for natural gas, uncertainty 
as to how the RFS will continue to be administered and supported by the EPA and the current Presidential 
Administration has impacted the stabilisation of the RIN market, resulting in price volatility and 
limited ability to sell RINs on a forward basis. Although the market remains relatively illiquid, 
the Company has been able to successfully monetise blocks of D3 cellulosic RINs at pricing levels 
commensurate with general market conditions.

In November 2018 the EPA released the final volume obligations for 2019 of 418 million gallons 
cellulosic D3 RINs, representing a 45% increase over the 2018 volume obligations for cellulosic 
D3 RINs of 288 million gallons. The EPA calculated the 2019 RVO using the same "rate of growth" 
methodology as used to set the 2018 RVO. By comparing D3 RIN generation for the 12-month period of 
October 2017 to September 2018 to the 12-month period of October 2016 to September 2017 the EPA 
arrived at a 29% growth factor used to determine the 2019 RVO. The issuance by the EPA of timely 
and sufficient annual volume obligations to accommodate the RNG industry's growing production levels 
is paramount to the stabilisation of the RIN market. Notwithstanding the growth of the RNG space, 
given the environmental premiums available for the prior two years, the Company remains, and expects 
to remain, a significant contributor to the overall generation of D3 RINs in the RFS programme. 
The table below provides the total RIN generation per calendar year from Montauk's RNG portfolio 
regardless of the monetisation strategy employed:

D3 RINS GENERATION

Category                                                           Calendar 2017      Calendar 2018
Montauk Portfolio D3 Generation                                     37.6 million       52.9 million
Total Industry D3 Generation                                       250.6 million      312.3 million
Montauk % of Total Industry D3                                             15.0%              16.9%
Final RVO Cellulosic Standard                                        311 million        288 million
Montauk % of RVO                                                           12.1%              18.4%

Low Carbon Fuel Standard ("LCFS")
The LCFS programme is a California-specific fuel policy designed to incentivise the use of cleaner 
low-carbon fuels. The programme accomplishes this objective by setting annual carbon intensity ("CI") 
standards, which are intended to reduce GHG emissions from the state's transportation sector. 
This reduction occurs by encouraging the use of low-carbon transportation fuel in vehicles as an 
alternative to fossil fuels. RNG both from LFG and dairy digester biogas that is used as a 
transportation fuel qualifies for LCFS credits. The number of LCFS credits for RNG from dairy 
digesters is significantly higher than the number of LCFS credits for RNG from landfills due to the 
relative CI scores of the two fuel sources. For dairy digester RNG projects in particular, 
LCFS credits are a substantial revenue driver. Only two states have adopted programmes of this 
nature, the other being Oregon with its Clean Fuels Program. To the extent that RNG from Montauk's 
facilities is used as a transportation fuel in states that have adopted a state-specific programme, 
it is eligible to receive an environmental attribute additional to the RIN value under the federal 
RFS. Montauk is actively working to increase our penetration into LCFS markets with new projects 
we are developing.

Renewable Portfolio Standards ("RPS")
The environmental premiums associated with renewable energy produced by Montauk's electric facilities 
are centred on various state RPS, requiring that a stated percentage of the electricity produced in 
that state comes from a renewable resource. Such premiums are in the form of renewable energy credits 
("RECs"). The value and requirements for each state programme vary widely, which can limit the 
ability of similar facilities located in different states from having a similar pricing structure. 
In addition, only 29 states and the District of Columbia have adopted RPS.

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. 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 is targeted to commence 
in the second 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 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 is 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 LCFS credits under the California LCFS. Commercial 
operation at this RNG project is targeted to commence in the third quarter of the 2020 financial year.

These additions will further strengthen Montauk's position as a leader in the production of RNG from 
biogas waste sources.

In July 2018 the Company entered into a joint venture agreement with a dairy farm partner to build, 
own and operate a manure digester and RNG facility at a small commercial dairy farm in California 
with Montauk holding an 80% interest. Although management continues to believe that the dairy RNG 
segment provides a growth opportunity for the Company as evidenced by the Pico RNG project, we have 
decided to exit this investment to focus on other opportunities and are exploring opportunities to 
sell our interest in this project.
 
The table below provides a summary of the three development projects described above:

Site                         Location                    Capacity
Coastal Plains               Houston, TX                 1 857 MMBtu/Day
Pico                         Jerome, ID                    933 MMBtu/Day
Galveston                    Galveston, TX               1 857 MMBtu/Day
Total                                                    4 647 MMBtu/Day

Fuel supply agreements
A critical component of the Company's business is its ability to negotiate and maintain long-term 
fuel supply agreements. Montauk has nurtured excellent working relationships with our biogas hosts 
and actively looks to strategically extend fuel supply rights at our project sites. The tables below 
provide a summary of the expiration periods of those agreements:

RNG FACILITIES - GAS RIGHTS EXPIRATION DATES
                                     
                                                             Expires in    Expires in  Greater than
                                                            0 - 5 years  6 - 15 years      15 years
Sites                                                                 0             3             6
% of FY 2019 total RNG portfolio production                       0.00%         8.95%        91.05%


RENEWABLE ELECTRIC FACILITIES - GAS RIGHTS EXPIRATION DATES
                                     
                                                             Expires in    Expires in  Greater than
                                                            0 - 5 years  6 - 15 years      15 years
Sites                                                                 1             2**           3***
% of FY 2019  total electric production                          11.37%        14.32%        74.31%

**  Includes Coastal Plains facility being converted to an RNG project
*** Includes Pico facility being converted to an RNG project; post-conversion the electric facility 
    will continue to operate on natural gas

DEVELOPMENT PROJECTS - GAS RIGHTS EXPIRATION DATES
 
                                                             Expires in    Expires in  Greater than
                                                            0 - 5 years  6 - 15 years      15 years
Sites                                                                 0             0             3

The Monmouth site in New Jersey consists of a renewable electricity project under a gas rights 
agreement that expires 31 December 2020, where the Company sells renewable electricity at market 
rates in PJM Regional Transmission Organization ("RTO"). In March 2019 the Company notified our host 
that we were terminating the existing gas rights agreement and surrendering the site due to a lack 
of landfill gas in commercial quantities, effective 27 September 2019.

Summary
In an industry that continues to experience depressed energy commodity pricing, management believes 
that Montauk is well positioned to sustain its strategic growth by capturing both existing and 
emerging value from developing renewable energy markets to drive long-term value for its shareholders.

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 31 March 2019 or its financial position on that date. 

CHANGES IN DIRECTORATE
Mr A van der Veen retired by rotation as a 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 have resolved not to declare a final dividend to focus financial resources on the 
continued development of the Company's operations portfolio.

For and on behalf of the board of directors


JA Copelyn              ML Ryan                      SF McClain
Chairman                Chief Executive Officer      Chief Financial Officer

Cape Town
9 May 2019


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
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