(REH) Renewable Energy

Well, REH have met a deadline! With the decision not to delist, that might be seen as good news.

Extract from AA2006's AGM Report of 10/08/2012:

"12. What plans are there to reduce administrative expenses further once Kobylany has been sold and while waiting for Sweetlamb to receive planning permission?

"We have been putting people who have contracts, on notice. We are now down on payroll to myself and my assistant Maree Bashforth alone. That will come to an end on 31 March, when we will continue to perform our obligations to the company on a per diem basis, so our costs will be variable to activity. And of course, everything else will continue to shrink, such as office space, where we are on one month's notice, and we're continuing to give away space as people leave. All the directors are minimising the cash burn, as fundamental to getting through this process. Our largest cost is that of statutory advisers - an obligation placed on us by AIM. After 31 March costs will be very low indeed."

John

Well, REH have met a deadline! With the decision not to delist, that might be seen as good news.

Extract from AA2006's AGM Report of 10/08/2012:

"12. What plans are there to reduce administrative expenses further once Kobylany has been sold and while waiting for Sweetlamb to receive planning permission?

"We have been putting people who have contracts, on notice. We are now down on payroll to myself and my assistant Maree Bashforth alone. That will come to an end on 31 March, when we will continue to perform our obligations to the company on a per diem basis, so our costs will be variable to activity. And of course, everything else will continue to shrink, such as office space, where we are on one month's notice, and we're continuing to give away space as people leave. All the directors are minimising the cash burn, as fundamental to getting through this process. Our largest cost is that of statutory advisers - an obligation placed on us by AIM. After 31 March costs will be very low indeed."

John

From rejawna on ADVFN:

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/ElectricPower/8889028

"Poland's draft renewable energy law will threaten the development of wind energy in the country because it would reduce the return on investment to an unacceptable level, consultancy PwC said Tuesday."

There seems little prospect of REH selling Kobylany unless changes are made to the draft RES Bill to reverse the reductions in subsidies. The last parliamentary elections were in 2011 so the next could be in 2015. What chance is there of the government agreeing to higher electricity prices till after those elections?

John

The offer price is 3.2c, a 20% discount to yesterday's price of 4.0c. At the end of today's trading, it stood at 3.3c.

John

http://www.carnegiewave.com/files/asx-announcements/2013/130208_SPP%20ASX%20Announcement.pdf

What a surprise!

John

14th February - Sydney
18th February - Melbourne
22nd February - Perth

http://www.carnegiewave.com/files/about/130206_website%20invite.pdf

Prelude to more fund raising or just encouraging the investors?

John

Utilico has certainly gained its pound of flesh in return for the additional loan. REH had a rather poor hand to play. Six months after the AGM, there is no sign of a sale of Kobylany, the planning application for Sweetlamb is about six months late and a decision is expected to take 16 months (i.e. June 2014) rather than the six to 12 months stated in September 2011. The delays explain why extra funds are essential.

Delisting from AIM will effectively lock in investors with no easy means of disposing of their shares. It probably means that news of progress will be limited to little more than the annual report and the AGM statement. The only good thing about it is it will save some money, reducing the size of the loan. I would suggest that all PIs think really hard about how they will vote at the EGM on delisting.

John

yep - as far as I can see that gives virtually everything to Utilco if it goes well. Combined with the sale of Carneigie at undervalue I think there is a fair shot for investors to go after the board/CEO as it looks very much as though they have sold out the shareholders - any thoughts ?
FD

Utilco look to be saving themselves £1m.

NFI!!

?

I am unclear just exactly why one would need a merchant bank and and international consultancy to advise on a share holding worth £3.33m

Renewable Energy Holdings plc
Mike Proffitt, Chief Executive

Tel: +44 (0) 16 2464 1199
Strand Hanson Limited
Rory Murphy / James Spinney

Tel: +44 (0) 20 7409 3494
FTI Consulting
Billy Clegg / Edward Westropp / Alex Beagley
Tel: +44 (0) 20 7831 3113

http://www.powerengineeringint.com/articles/2012/11/climate-chief-predicts-dominant-future-for-australian-renewables.html

Would be nice to see CETO get a piece of this

Just to reply to my own post in case anyone else has the same question, I got a transfer in offer from Sippdeal (happy to leave iii and their draconian new fees). They confirmed that I can hold Carnegie shares on ASX in the regular dealing account they offer.

So I'm grimly hanging in here and will in fact buy more (using up some spare change) if the distribution of Carnegie shares to REH shareholders with REH priced at a discount to Carnegie ever does come to pass - as many REH holders will dump their CWE holdings at this point (due to their broker not handling the shares) I would imagine CWE and REH prices will stay depressed, and I still think CETO is a Good Thing!

http://www.carnegiewave.com/files/asx-announcements/2012/121004_Visit%20of%20the%20Ireland%20Ambassador%20to%20Australia.pdf

John

Tenobas,

To be absolutely fair, it was at the AGM on 8th August that Profitt said that he thought they were "very sure" that they would submit the planning application before the end of September. That is now nearly eight weeks ago, not "only a month ago". Being involved in planning applications, I am not surprised by such delays, especially in large developments; there are so many interested parties to satisfy. It could be that the consultation phase is taking longer than expected.

I don't know where you got your figures from but the accounts list £13,000 spent on development expenditure and £672,000 on administration expenditure. That last figure is the main concern, It is less than the £875,000 spent on administration in the previous six months but should come down considerably between now and the end of March, as indicated by Profitt at the AGM.

John

I looked at the Market Report today before logging on and was pleasantly surprised to read, "On the AIM front, Renewable Energy Holdings (REH) soared 14%."

I then opened My Portfolio to find the price hadn't changed from 3.5p. There was an order for 50,000 shares at 4p shortly after the market opened which seems to have got iii a little over excited. As the spread is 3p/4p, they should have known better.

John

In the first 6 months of 2012 by their own account they spent £14,000 on progressing their Welsh project and £650,000 on other things (what other things?).

Since the success of the Welsh Wind Farm determines the success of the company
Submission of the planning proposal which was Q3 only a month ago is now Q4.

I think we can forget about REH.

dsr1,

I suggest that you ask iii what your options are. They don't offer trading on ASX (the Australian Stock Exchange) so I assume they will not be able to hold CWE shares in your account. Will they transfer them to another account of your choosing or will they send you the certificates? Note that having REH in a SIPP may be a further complication.

One of the reasons I sold my REH shares back in October was that the account my shares were in did not offer trading on ASX. When I reinvested last month, I chose TD Direct Investing because they do. However, I am not sure that they have a SIPP account.

John

First of all I'd like to voice thanks to John O Groats for all the excellent information and insightful comments you've put on this board over the years.

I, of course, loathe looking at the REH share price and massive minus figure next to it in my portfolio, but such is life and I still maintain belief in CETO and would like to stay invested in it. Assuming (I think a decent sized IF has to apply here given REH's history) the distribution of CWE shares to REH investors happens this gives rise to a problem which is how to hold my holding as a UK resident.
I hold shares through iii and also through sippdeal, and I guess there may be others here who use these two - does anyone have any good ideas about how to hold Australian shares without paying a sizeable admin fee (as this will be a small holding held long term and my only Australian stock).

Any help much appreciated.

Sorry, it should have read "I did not realise how much work remained".

O for an edit facility!

John

CETO gets bigger and better with each design iteration. No wonder REH wanted to get out of funding development work, three years ago; it could not have afforded such a prolonged period of development. At the time, I did not release how much work still remained to get CETO into commercial operation though I supported the change of ownership because it simplified the complicated arrangement between REH and Carnegie.

This is the CWE announcement with pictures:
http://www.carnegiewave.com/files/asx-announcements/2012/120921_Next%20Generation%20CETO%205%20Unit%20Design%20Release.pdf

VIdeo simulation of CETO5:
http://www.carnegiewave.com/index.php?url=/media/videolibrary-3

John

My attention was drawn to this :

"I have assumed that the £618k in Trade and other payables has been settled but I have included the £18,225k (81MW @ £225k per MW) owing to MYG shareholders when planning permission for Sweetlamb is received."

Do we know the exact terms of when this amount must be paid?

Does it mean that granting of planning hangs like the sword of Damocles in that the cash must be found
to a deadline?

Thanks, I value your reply.

I am interested in REH because I am interested in buying but I am wary of AIM, still have questions and watch the price fall.

I am interested in FGP because I think they are a safe short sell but maybe the situation will be clearer after the next franchise auction completes.

I am interested in WIN because they are (another) good example of a company with a massive pension burden and I am interested in he question of whether such companies can survive. I do not view them as a safe short sell even if that were possible because their P/E is too low. I am also interested in STOB because they have a tiny exposure to pensions and investment in airports. I think that they can benefit from WIN's problems.

I am interested in GET because I am interested in companies which would profit from very high inflation.
I do not view them as a buy because I think that they are vulnerable to the price of oil and to oversize trucks.

I am interested in CPR because I think that they are on a massive P/E, are vulnerable to competition from developing online vendors and because I think that short sellers are routinely squeezed out of the market.

I think that REH are supposed to be in the consultation period relating to their pending planning application and maybe it would be a good idea to consult with them about possible problems with their planning application.

tenobas,

I am not sure why you are worried nor why you want to know my reasons for looking at these types of companies.

Yes, the companies I tend to watch are ambitious and have interesting technology. I am particularly interested in technologies that may address the huge difficulties that face this country - lack of natural resources, increasing competition for resources from developing countries, increasing cost of energy, climate change and the expensive commitments made by governments to combat it.

Are they too ambitious? Time will tell but nothing ventured, nothing gained.

Do they lack the necessary resources? That is something that can only be answered definitively in retrospect when venturing into the unknown. Some definitely did have the necessary funding but then wasted it, often pursuing the CEO's grandiose or pet ideas - ITM, PDX, TRT and ZEN come to mind.

Are their arguments convincing? Certainly they were convincing enough to attract considerable investment. Are they still convincing? Possibly, but this is about the worst time to attract further funds where profits are only a possibility.

I might ask why you bother with REH, FGP, WIN, GET or CPR, especially those you recommend selling?

John of Groats

Looking at your postings I am worried about what I perceive as your
uncanny ability at seeking out what turn out to be losers.

Are you a dreamer? What is the nature of your interest?
Do you invest in these companies?
Is it true that these sorts of companies are far to ambitious and optimistic
and never have the resources or the convincing arguments to make their ideas succeed?

The bottom line appears to be that if Sweetlamb is not granted planning permission and not sold then the shareholders will get nothing.

If this is the case then it all depends upon the planning application.

Scottish Power have the Dyfnant Forest site nearby pre application and the National Grid application is the same.

Both the above processes display considerable work, whereas Mynydd y Gwynt Wind Farm from REH as yet shows almost nothing.

Given the synergies with the wind farms it would appear that there is a following wind with the authorities and the general lack of public interest helps.

In these circumstances it looks as if the share price will perk up when the planning application is submitted.

If planning consent is granted then the gap between 225k per MW and 500k per MW becomes the issue. Gross revenue at 10p per KWh is £24m p.a. with operation and maintenance costing say £12m? The capital cost would be circa £100m suggesting that your £40m price is in the right ball park?

The connection to the National Grid sub station at 20km would appear to cost about £3m and may be relevant. In the medium term the price of gas may also be influential in financially turbulent times/

Would you agree with this?

I should have added that the greatest single risk is that Sweetlamb is not given planning permission, That could knock up to £23,025k off the Asset Value, leaving just £6,306k or 9.06p per share. There is also a possibility of permission for less than 81MW giving a value between 9.06p and 42.14p.

Also, the CWE share price has been dropping since the end of July and is now down to 3.5c, knocking nearly £540k off my valuation. With a small drop in the AU$, my top NAV for REH is now 41.35p per share.

John

The rise in the SP over the last few days has prompted me to set down my calculations of the Net Asset Value of REH. The figures take an optimistic view of what Kobylany and Sweetlamb will be worth at the end of this year, so be warned, there is many a slip twixt cup and lip.

The balance sheet on 31st December, 2011, showed the two wind farms valued as intangible assets worth £1565k. That merely represents what REH has invested in them so far, not their likely sale value. I have valued them as follows:

Kobylany - 30MW @ €172k per MW (Bloomberg average) = £4,128k (£1 = €1.25)
Sweetlamb - 81MW @ £500k per MW (REH AGM answers) = £40,500k

I applied a nominal 5% depreciation on Property, plant and equipment, bringing it down from £2,386k to £2,266k.

The CWE shares were valued at £8,578k before the sale. I have valued them as follows: 101,330,192 shares @ 43c = £2,883k (£1 = AU$1.5113)

I have assumed that £530 has been received from the outstanding £1,280 in Trade and other receivables, leaving the £750k prepayment for MYG (REH AGM answers).

I have assumed that the £618k in Trade and other payables has been settled but I have included the £18,225k (81MW @ £225k per MW) owing to MYG shareholders when planning permission for Sweetlamb is received.

To estimate the remaining cash by the end of the year, I have assumed that administration costs for the year will be £1,375k (annual figure after the last cost reductions). This ignores the possibility of further cost reductions (REH AGM answers). After allowing for settlement and receivables and payables, this leaves only £29k in cash, assuming neither wind farm has been sold by then.

With £3,000k of borrowings, this gives total Net Assets of £29,331k, or 42.14p per share (69,609,501 shares).

As I said before, this is an optimistic valuation. There may be redundancy costs that I have not allowed for and there will probably be administration costs next year, albeit much reduced (REH AGM answers). Of course, Kobylany may be sold this year and it is possible that Sweetlamb could be sold prior to planning permission, possibly at a discount. DYOR.

John

I forgot the check digit: .....both (8) ;-)

John

Thanks for your efforts in putting my questions to the Meeting and producing such an excellent report. I wonder if that was the best attended AGM they have had. I cannot remember reading a shareholder's report of an AGM before. The Isle of Man is not the easiest place to get to on a day-return ticket.

Unfortunately, I was out shopping with my wife when you posted your report (she normally goes to the bric-a-brac market on a Friday with a friend who had other things to do yesterday - my arm was twisted) so I did not set down to read the BB posts till this morning, I will probably phone Alex Bush on Monday.

I have spent an inordinate amount of time over the last four weeks delving more deeply into REH than I ever did when I held the shares! Whether it was worth it remains to be seen but, at least, you got comprehensive snswers to my questions. As stated at the Meeting, REH is a binary gamble with the added complexity of how to handle CWE shares if and when they are returned. I will think carefully before taking any action.

I would have enjoyed attending as the body language, particularly when answering tricky questions, can be as important as what is actually said. The Isle of Man is one of the major British Isles I have never visited and, had I not had other commitments this month, I would have been tempted to take a short break there. I do not like publishing my details but, if you want to discuss these matters further you can contact me at gmail.com. Initially, my first you can guess; for two more take nothing from old and then add to both. Sorry to be so cryptic.

John

JoG - Alex Bush approached me after the AGM. He also reads the REH BBs and noted a comment you made about an acquisition. He said he would be happy to talk you through the issue, pointing to places into the accounts, if you cared to contact him via the REH switchboard.

Attended the AGM, but busy with other things afterwards and no time to write a report until yesterday. Afterwards I was somewhat loath to post it, because there is price-sensitive information here, and I was concerned about any errors. Accordingly I emailed my draft to REH for approval. I have just received it back from Maree Bashforth, with a number of errors corrected by Mike Proffitt, which gives more credibility as well as getting me off the hook. I haven't bought in the interim, and may not even buy more later, but even so I'm sticking to my "Strong Buy" rating for now. The fairly high risk is in the price. As the Chairman Sir John Baker CBE rightly stated, "it's binary" - either the windfarm assets sell or they don't. Even if just one sells REH should do OK, and then there is Carnegie of course.

I sought and received permission from the Board to do this. Mike Proffitt (MP) stated that I was free to write what I wanted on the BBs, but another Board member added that I should be careful not to write anything that the company might be obliged to correct. Naturally, I agree with the latter, and have done my best here to either write exactly what was said or paraphrase concisely [Any comments of my own as an aid to paraphrase are in these square brackets.]

Nine persons present: the four-man Board, Maree Bashforth - REH Office Manager, Alex Bush - outsourced accounts, Nick Halsall audit partner, and two shareholders (the other one fitted the AGM in whilst on a visit to the Isle of Man).

After the six resolutions and AOB - the re-appointment of the board, the new strategy of returning cash/shares to shareholders, organising the ability to convert Utilico's debt etc. - questions were invited.

The other shareholder present started proceedings by commenting that he thought there might have been a statement or something concerning the timing of the share sale, i.e. why such a low price of 1 cent was realised when a day afterwards news was released by CWE which sent the share price towards 5 cents.

Mike Proffitt (MP) replied that a short answer was that working capital was required to keep the company listed. To meet the capital adequacy test REH needed cash. The quickest available cash was through selling CWE shares. REH started to sell these in small blocks of about 250,000 a day, starting when the price was about 5.5 cents. The market very quickly noticed that these were REH shares, and it knew that REH was going to close down and return cash to shareholders: thus an overhang situation developed, and the shares plummeted in no time to 2.6 cents. The chief executive of CWE then came on to MP and said that, if you continue, CWE shares are going to zero. He asked when the selling was going to stop. MP told the CEO how much REH required to pass the capital adequacy test, and the CEO said they could get this amount from a supportive shareholder. [The rest is history.] MP stated that an alternative of selling the shares to one of the major REH shareholders would not have cured the problem of the overhang [as perceived by the market]. MP did this in order to stabilise CWE [also with regard to the remaining CWE shares held by REH]. The statement which came out the next day was not a new announcement, but a regurgitation of a previous announcement - however, the news that the overhang had cleared was instrumental in sending the CWE share price back to about 4.6 cents.

After this there was quite an extensive discussion re previous attempts to sell on REH's CWE shares. Either there have been no takers [not too surprisingly for such a new and relatively untried technology] or investors preferred to invest directly in CWE. If a strong enough market for CWE shares developed over the next few months [strong enough to easily absorb the REH holding] the board might consider selling them [in consultation with CWE, with whom the voluntary escrow has been agreed] rather than returning them to shareholders.

After this it was my

My interest in HGI was prompted by a post from GDP2 on ADVFN in which he said that "Henderson won't hold aussie stock". I could find nothing to corroborate that but he subsequently said that, to his knowledge, "Henderson cannot and will not hold ASX shares, hence their dismay with the current situation". Presumably they were happy to hold them through a UK listed company but would have to dispose of the 1.25m CWE shares that will be their share when REH distributes its holding to shareholders. That could have a depressing effect on the CWE SP, at least temporarily.

GDP2 is George Potts of GDPCapital who issued a research note on CWE back in October last year:

http://www.gdpcapital.co.uk/docs/investor_update_12_10_11.pdf

John

Is Henderson Global Investors (HGI) interested in the CWE shares held by REH or is it the wind farms? There is a puzzle relating to the disbandment of its Socially Responsible Investment (SRI) team in December 2011 and the transfer of the relevant funds to "mainsteam" managers. There seems to be concern amongst "the green community" that Henderson may be losing commitment to the renewable energy sector.

http://blueandgreentomorrow.com/2011/12/21/backward-step-for-sector-as-henderson-scraps-sri-team/

Was the investment in REH made initially by the SRI team and in which fund are the shares (and CFDs) now held? None of the funds currently listed on their website appear to be suitable vehicles for renewable energy investments. If HGI is no longer particularly interested in renewable energy, why has it continued to invest after disbanding the SRI team?

The history of its purchases is interesting and contains at least one inconsistency. It was not recorded as a significant shareholder in the 2010 Annual Report and the first announcement of a holding was on 20/06/2011. This stated that it had crossed the 10% threshhold on 17/06/2011, yet the number of shares held had not changed - the number of shares before and after the triggering event were 3,940,000 (5.66%). That alone should have triggered an earlier announcement sometime between the first of January and the 17th of June. The balance of its interest was in 3,100,000 CFDs, bringing the total of voting rights to 7,040,000 (10.11%).

Subsequent purchases that triggered an announcement were made on 04/08/2011 (crossing 11%), 07/09/11 (12%), 09/11/11 (13%), 12/03/12 (14%), 15/06/12 (16%)and 16/07/12 (17%) but, by comparing shares held before and after each event and from the holding in the 2011 Annual Report, purchases were made on a number of occasions between these announcements. My conclusion is that HGI has been adding to its holding regularly over the last year and that the demise of the SRI team has had no effect on that pattern. As noted by AA2006, not even the sale of CWE shares at only 1c per share has stopped it buying more.

I would be most surprised if the major institutional shareholders were not consulted before selling those CWE shares. Presumably there were no great objections or HGI would not have added to its REH holding on 16th July. If the value of the CWE shares was not what kept it buying, what could it be? Assuming it is not stupid, it must be the value it sees in the wind farms. What has HGI seen that I have not?

John

CoW,

I sit on the district planning committee and I can't keep up either! I have spent far more time on REH and CWE than I should but once I get my teeth into something, I don't let go easily, even after I sold the shares.

John

John

Fine questions. Are you Jeremy Paxman in disguise?

If we had answers to those questions, investors would have more confidence to invest. The fact we don't makes investors nervous and suspicious.

Sorry about the wrong name for the infrastructure commission thingy. I'm a planner and I can't keep up with all the crazy, often pointless, usually with unintended consequences, changes to the planning system this government is bringing in. To put it bluntly, they think they are helping to speed up planning and development, bless 'em, but they ain't. It's just becoming a lawyers dream of confusion and vague policy. Or maybe that was the intended consequence all along!

I'm still in the wings waiting for 3-3.5p...

AA2006,

See the AGM notice for time and place. I shall look forward to your report.

Here are a few questions that you may be able to get answers to but I won't hold my breath:

When will the remaining CWE shares be distributed to shareholders?

What is the legal position of the shares in Voluntary Escrow if the company were to go into administration before they have been distributed?

How will the shares be transferred to shareholders whose REH shares are held in nominee accounts that do not handle companies listed on ASX?

Why has sale of Kobylany taken so long when companies such as RWE are keen to expand their wind power portfolio in Poland?

Who covers the cost of connecting the three groups of turbines (9 at Kobylany/Nienaszow, 3 at Draganowa and 3 at Lysa Gora) to the grid - the developer or PGE (Polska Grupa Energetyczna)?

If Kobylany has not been sold by the end of this year, how will continued operation of the company be funded?

Will the planning application for Sweetlamb (Mynydd y Gwynt) be submitted before the end of the 3rd quarter, 2012, as expected?

In September last year, it was expected that the planning decision could take between 6 and 12 months from the date of submission. Is that still the case?

Will planning permission and development be in any way affected by a decision on proposed new grid connections in Powys?

Bloomberg have stated that the average price for fully-permitted, but unbuilt, wind assets is Euro 172,000 (£ 140,000) per MW. The wind regime in Wales is considerably higher than the European average so what multiple of the average might Sweetlamb be expected to fetch, bearing in mind that REH has to pay £225,000 per MW to the shareholders of Mynydd y Gwynt Limited (MYG)?

Will the pre-payment of £750,000 for the option to buy the shares of MYG be deducted from the final payment of £225,000 per MW?

What plans are there to reduce administrative expenses further once Kobylany has been sold and while waiting for Sweetlamb to receive planning permission?

John

JoG - Thanks for the interesting comments, and for posting mine on ADVFN.

"Poland has around 1,900 MW of wind energy installed, which represents 6 percent of the power system's total capacity. According to EU requirements, in 2020 at least 15 percent of Polish energy is to come from renewable sources.

The country is overhauling its renewable support plan."

Looks very positive. There's all sorts of speculations we might make about what is going on re Kobylany and Sweetlamb, but for me the best pointer is that none of the IIs have apparently been selling recently, and Henderson bought nearly £70K worth even after all those CWE shares were dumped for just one cent apiece.

One thing I like about CWE is all the govt. money behind it. If Reunion goes ahead as planned in a few weeks I think we'll see a substantial uplift in the shares.

That was my 31K buy this morning. Had to split it to get the lower price.

I live in the Isle of Man and plan to attend the AGM next Wednesday. Presumably it's at the Head Office in Hope Street (!), Douglas. If possible I'll post a report on here.

Following on from CETorWIND's post that the planning application will be decided by the infrastructure commission, I have found that the Infrastructure Planning Commission was abolished on 1st April 2012 (whoever chose that date deserves the Yes Minister award for unintended consequences) and has been replaced by National Infrastructure Planning (whoever decided such a trivial change of name richly deserves the Cyril Northcote Parkinson medal for time wasting).

There is a webpage for the Mynydd y Gwynt (Sweetlamb) planning application but it is little more than a place marker until the application is received.

http://infrastructure.planningportal.gov.uk/projects/wales/mynydd-y-gwynt-wind-farm/

John

http://infrastructure.planningportal.gov.uk/projects/wales/mynydd-y-gwynt-wind-farm/