Helius Energy Plc : Interim results for the six months to 31/03/2013

Interim results for the six months to 31/03/2013 /**/

RNS Number : 2389H

Helius Energy Plc

18 June 2013



18 June 2013

Helius Energy plc

Interim results for the six months to 31stMarch 2013

Helius Energy plc¹ (AIM:HEGY) announces its interim results for the six months to 31stMarch 2013

Operational update for the period:

· Rothes project remains on time with the reliability tests having been finished and performance trials in progress

· ROC accreditation has been received

· Rothes project connected to the grid with first electricity generated and invoices issued

· Contracts being finalised for the construction, fuel supply and electricity offtake for the Avonmouth project

· Club of potential lenders engaged in due diligence for Avonmouth project level senior debt

· Heads of terms agreed for Avonmouth project equity

· Consenting process for Southampton project in progress

Financial update for the period:

During the period the Company completed a Placing of £5.6m (net) providing additional working capital

Commenting on the results, Dr Adrian Bowles, Chief Executive Officer said:

"We continue to make progress with our pipeline of biomass energy projects. The Rothes project is in the final stages of reliability testing, with ROC accreditation received and revenues being generated for the project from electricity output. This demonstrates the ability of the Company to develop, finance and deliver its projects. We continue to focus on the financing of the Avonmouth project, which we are targeting to finalise later in the financial year."

([1]) In this report, the "Company" shall mean Helius Energy plc and/or, where the context otherwise requires, any relevant subsidiary of Helius Energy plc

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Notes to Editors:

Helius Energy plc was established to identify, develop, own and operate biomass fired renewable electricity generation plants. These will help meet the growing need for reliable power from renewable sources.

Helius possesses a significant combination of knowledge of renewable energy markets, biomass energy technologies, biomass fuel sources, project development, implementation and operation of power generation plants.

Chairman's statement

I am pleased to report the Company's interim results for the six months ended 31st March 2013, during which period we have continued to build upon our previous successes and to make progress in the development of our pipeline of biomass energy projects.

The Rothes project remains on time and on budget and commissioning activities are progressing to plan with electricity being generated and invoiced for. Throughout the period we have continued to focus on finalising contracts and financing arrangements for the Avonmouth project. Progress has been challenging due to the difficult nature of both debt and equity markets, in part due to uncertainty around Government policy. Our planning team continue to work on preparing a formal planning application for the Southampton project which we expect to submit later in the year.

Rothes project

The Rothes project is currently in the commissioning phase and has been delivered on time and within the original budget. First electricity was generated in January this year and ROC accreditation was received in April 2013. It is expected that the plant will enter commercial operation within the next month.

Avonmouth project

During the period we have agreed heads of terms with an equity provider for the entire equity requirements of the project. These heads allow for development fees, management service fees and an ongoing interest in the plant. We have continued to progress contract negotiations with suppliers and contractors and progressed due diligence work with a group of banks to secure the debt required to provide funding for the project. We are aiming to finalise all contract terms along with the financing for the project later in the financial year at which point we aim to secure development fees to provide the working capital required to ensure that the Company is able to continue to meet its project development and corporate costs going forward.

Southampton project

We commenced the statutory consultation for this project in November 2010 and have received a high level of local interest in our proposals. Taking account of the feedback from the consultation we are preparing an amended scheme which will be used as the basis for a full application to the National Infrastructure Directorate of the Planning Inspectorate for a Development Consent Order later this year

Outlook

The Rothes project is expected to enter commercial operation in the next month.

In light of the success of the financing and construction of the Rothes Project and the progress made so far with the Avonmouth project, the Company will continue to develop and review its project pipeline and to focus on its immediate funding requirements, and in particular the raising of debt and equity within the project company, Helius Energy Gamma Ltd, for Avonmouth project. The Company expects to secure a development fee from the Avonmouth project at financial close that will provide working capital for the Company.

Finally, on behalf of myself and the Board, I would like to thank all of our employees for their continuing hard work and support.

John M Seed

Chairman

Financial and operational update

Our strategy is to retain an ongoing interest in projects in addition to receiving development fees.

During the development phase of our projects we do not receive income. Our strategy remains one of focusing the Company's resources on delivering projects to financial closure and managing each project's implementation and construction.

During the first six months of this financial year the key financial indicators were as follows:

The Company recorded revenues of £146k relating to management service agreements it has with the Rothes project and separately with the distillers involved in the project. This represents a slight reduction on the previous year due to less chargeable support being provided to the project in the latter stages of construction.

Administration costs, excluding share based payments (£0.1m), for the period were £0.7m compared with £0.9m for the corresponding period last year, reflecting cost reduction measures implemented in 2011 and 2012. The Board continues to review costs to ensure that cash is focused on project development activities.

The Company reported a loss before taxation of £699k for the six months ended 31stMarch 2013, compared with a loss of £644k for the corresponding period in the previous year.

The results for the six months ended 31stMarch 2012 included the benefit of a £358k increase in the value of the earn-out asset and subsequent deed of amendment signed with RWE Innogy in January 2011. The deed of amendment expired in 2012 and at this point the 'earn out' balance was impaired to a value of £nil in the 2012 results.

Net cash outflow before financing activities in the period was £2.9m, of which £1.6m was invested in projects, compared with a net cash outflow of £2.5m for the corresponding period in the previous year.

The cash balance at 31st March 2013 was £4.7m (31st March 2012: £4.3m). The cash balance included receipts of £5.6m (net) from a placing of shares that was made in order to provide additional working capital required to support the development of projects. The Company is aiming to secure a development fee from the Avonmouth project to provide general working capital for company operations and project development activities in 2014 and beyond.

The property, plant and equipment balance as at the 31st March 2013 was £10.9m which represents the development costs for projects and is expected to be recoverable. This balance was made up of £7m relating to the Avonmouth project and £3.9m relating to the Southampton project.

Principal risks and uncertainties

A comprehensive analysis of the risks associated with project development are set out in more detail on pages 9 through 11 of the Annual Report for the financial year ended 30 September 2012, and are summarised below.

Various issues, relating to energy project development, pose risks which may lead to circumstances having a substantial adverse effect on the Company's business, financial condition, trading performance and prospects. Such issues include:

· Continued dependence on the ability of the Company to locate, select, develop and realise appropriate opportunities. Suitable opportunities may not be located and projects may not be successful.

· Securing the necessary consents may be subject to delays beyond the Company's control, which may subsequently cause any or all of the projects to be delayed or aborted. There is also no guarantee that any or all of the necessary consents will be granted.

· Being able to negotiate contracts for construction and fuel supply that allow project finance to be secured.

· The availability of feedstock for the Company's projects is affected by various factors, including climate change, crop productivity, ecological impacts, socio-economic factors, pests (and related phytosanitary restrictions), shipping availability, sustainability criteria and labour shortages.

· Foreign sourced supplies are subject to special risks that may disrupt markets, including the risk of war, terrorism, civil disturbances, embargo, and government activities. There can be no assurance that the Company will not experience difficulties in connection with future foreign supplies and, in particular, adverse effects from foreign currency fluctuations, shipping markets and international inflationary effects that potentially will have a negative impact on the cost of both construction and fuel for biomass plants.

· The Company could be adversely affected if any of its operations failed to comply with EU, UK and local environmental and health and safety laws and regulations. Failure or inability to comply with any such statutes or regulations could result in civil or criminal liability, the limitation, suspension or termination of operations, imposition of clean up costs, fines or penalties and large expenditures, which may adversely affect the Company's business results from operations or financial condition.

· The Company could be adversely affected by any changes to, or replacement of, the Renewables Obligation regime if such a change caused a reduction in revenues from Renewables Obligation Certificates.

· The Company could be adversely affected by adverse changes to the project debt finance and/or equity markets leading to the inability to secure finance for its projects.

The Company's plans are exposed to electricity market price risk through variations in the wholesale price of electricity and biomass material. In April 2011, Helius CoRDe Limited entered forward contracts for both electricity and biomass material along with forward contracts for interest and exchange rates. These contracts were all required to secure project finance for the project.

The Company believes that its future success will greatly depend upon the continuing ability to raise debt and equity to support the development and construction of its projects, and upon the expertise and continued services of certain key executives and technical personnel, including, in particular, the Executive Directors and key senior managers. The Company benchmarks remuneration levels of key staff against similar positions in other small capitalisation companies and has put in place share option and long term incentive plan (LTIP) schemes linked to project and individual performance.

Corporate governance

The Company continues, to the extent practicable and appropriate for a company of its size and constitution, to comply with applicable corporate governance rules and best practice provisions for companies set out in the UK Combined Code on Corporate Governance, and continues to keep its overall system of internal control under review.

The Company has a Remuneration Committee and an Audit Committee which are both chaired by the Company's senior independent non-Executive Director, William Rickett.

Each of those committees is regulated by terms of reference which are kept under review and which reflect good corporate governance practice.

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