Renewable Energy Generation Ltd Final Results (5967Q)

TIDMWIND

RNS Number : 5967Q

Renewable Energy Generation Ltd

16 October 2013

Renewable Energy Generation Limited

("REG", "the Company" or "the Group")

Preliminary Results for the year ended 30 June 2013

RENEWABLE ENERGY GENERATION DELIVERS PROFITS FROM MATURING

DEVELOPMENT PORTFOLIO

Renewable Energy Generation Limited (AIM: WIND), the renewable energy group, today announces its preliminary results for the year ended 30 June 2013.

 
 Financial Year Highlights 
 
 --   Revenue of GBP13.4 million (2012: GBP12.1 million) 
 --   Adjusted EBITDA(1) GBP12.3million (2012: GBP2.7million) 
 --   Profit after tax of GBP6.5 million (2012: loss of GBP1.8 million) 
 --   Sale of 16MW of wind farms for net profit of GBP9.1m 
 --   Cash and cash equivalents of GBP16.1 million (2012: GBP9.6 million) 
 --   Proposal to pay final dividend of 1.5p per Ordinary Share (2012: 
       1.5p) 
 --   Total dividend for the year maintained at 2.0p (2012: 2.0p) 
 
 Operational highlights 
 
 --   Construction of South Sharpley (6MW), Orchard End (4MW) and Burnthouse 
       Farm (6MW) wind farms 
 --   Planning permission granted for St Breock (10MW), Ramsey II (8MW) 
       and Burnthouse Farm (6MW) wind farms 
 --   66MW of new planning applications made, with 135MW now awaiting 
       determination 
 --   Long term strategic partnership established with a fund managed 
       by BlackRock, 
      --    with the sale of two newly built wind farms at Sancton Hill 
             (10MW) and South Sharpley (6MW) for a total enterprise value 
             of GBP32.1m 
      --    Agreement of a long term Asset Management Agreement 
      --    An Asset Investment Agreement ("AIA") which provides a framework 
             for future co-operation between REG and BlackRock

(1) Earnings before interest, taxation, depreciation and amortisation ("EBITDA") is equal to the Group's continuing operating profit before share based payments, interest, taxation, depreciation and amortisation.

 
 Post year end events 
 
 --   Sale of the Goonhilly wind farm (12MW) for an enterprise value 
       of GBP25.1m

REG Chief Executive Officer Andrew Whalley said:

" This has been an important year for REG. We are delighted with the progress that we have made. The most notable achievement was the establishment of a long-term partnership with global fund management giant BlackRock. This has enabled us to realise significant value and by selling some of our large, completed wind farm projects. It will also lead to more opportunities to accelerate our development plan and to establish new earnings streams from our asset management agreement.

" Our focus remains on delivering value for all our shareholders. We have a large development pipeline and a first class team to drive this forward. Looking ahead, the business is in excellent shape and the future remains very encouraging."

A presentation to equity analysts will be held today at 9.30am at the offices of Broker Profile, Augustine House, 6A Austin Friars, London, EC2N 2HA. Please contact Simon Courtenay if you would like to attend.

ENDS

Enquiries:

 
 Renewable Energy Generation Limited 
  Andrew Whalley, Chief Executive Officer 
  David Crockford, Finance Director 
  Ian Lawrence, Communications Manager           +44 (0)1483 901 790 
 Smith & Williamson Corporate Finance Limited 
  (Nominated Adviser) 
  Martyn Fraser                                  +44 (0)117 376 2213 
 Cenkos (Corporate Broker) 
  Bobbie Hilliam/Max Hartley                     +44 (0)20 7397 8900 
 Broker Profile 
  Simon Courtenay                                +44 (0)20 7448 3244

Notes to editors

Renewable Energy Generation Ltd (REG) is a UK renewable energy group. Its main business is the development, construction and operation of wind farms and generating power from refined used cooking oil.

REG Windpower: based in Truro, Guildford and Bath, UK, it currently operates 14 wind projects in Cambridgeshire, Cornwall, County Durham, Yorkshire, Lancashire, Cumbria and Gwynedd, with a total capacity of 67.15MW and has a development pipeline of over 1,000MW.

REG Bio-Power UK Ltd: based in Nottingham, UK: it operates electricity generation plant powered by fuel recovered from used cooking oil.

Headquartered in Jersey, REG was admitted to trading on AIM, a market operated by the London Stock Exchange, in May 2005 (AIM: WIND).

www.renewableenergygeneration.co.uk

Chairman's Statement

Global Context

Investment in renewable energy reached the second-highest level ever over the last year, albeit down from the previous 12 months. Investor uncertainty over policy support in renewable energy's longest-established markets in Southern Europe and the US was behind the year-on-year drop but investment remained 8% up compared to 2010.

Within this global picture renewable energy investment in developing countries rose by 19% to its highest ever, with China overtaking the US to top the league. For the main renewable technologies of Wind and Solar PV, technological advance and industry restructuring in over-supplied markets has helped the robust rally in clean energy stock prices; up by more than a quarter in the past year.

Closer to Home

Inevitably the credit crisis and recession have propelled public finances above energy and environmental sustainability in the political agenda and with energy affordability already becoming an election issue the paralysis which has persistently afflicted UK energy policy looks set to result in a security of supplies crisis during the current decade. The retirement in coming years of one quarter of the UK's existing nuclear and coal-fired power generating capacity is creating an unprecedented challenge for the power industry. The energy regulator OFGEM has warned again that a record low margin of electricity generating capacity, forecast now to be only 2% to 5% above demand by 2015, risks power shortages. It has called for rapid progress in the development of a capacity market, both to incentivise the availability of Megawatts to help meet winter power demand and to help manage increased variability of supply resulting from the substantial amount of renewable generation coming on line at near-zero marginal cost. Capacity payments are either present or pending in all five of Europe's largest economies.

Futures markets are already pricing in increased wholesale power prices in the UK and investors are increasingly keen to have direct exposure to them rather than through longer term Power Purchase Agreements.

The public debate on energy affordability has been distorted by misinformation most of this has focused on what is in fact been the minor impact of renewable energy policies, compared with the dominant cost of imported gas. Shale gas has been hailed as the means to dramatically reduce energy prices in the UK as it has in the US. However recent energy industry analysis has warned that for geological, infrastructure and societal reasons it is unlikely that UK deposits could be extracted for less than twice the cost of those in the US, nor for substantially less than the current European and thus UK gas market price.

The government's draft Energy Bill aims to attract more than GBP100bn investment needed to restore adequate power system capacity by 2020 largely by building new nuclear power stations, onshore and offshore wind projects and gas-fired and biomass plants. Recent proposals for the level of price support for new plant, which from 2014 will be an alternative to, and from 2017 will replace, the Renewables Obligation, were broadly welcomed with proposed "strike prices" under the Contracts for Difference mechanism for wind and solar energy in particular regarded as acceptable for investors and energy users.

The UK government's current ambition for onshore wind installed capacity is 10-13GW. Of this some 7GW is operating or under construction. Its expectation for solar PV is up to 20GW by 2020 of which 3GW is currently operating.

Relevance

REG remains well positioned to benefit from its strategy to focus on the domestic renewable energy market, a strategy it determined four years ago, since successfully selling its Canadian wind business. Since then it has committed over GBP100m in new renewable energy projects in the UK.

Our primary objective remains to build, own and operate a sizeable pool of renewable energy assets benefitting from the UK's stable incentives and strengthening power prices. It is difficult to predict policy beyond the medium-term but your Board believes that investment opportunities in the UK will remain attractive for onshore wind throughout the next decade, with debt-laden large utilities divesting of small to medium projects which we have shown we can profitably build or re-power. This, together with the UK's continuing commitment to "grandfather rights" to long-term tariffs and our shared view of higher UK wholesale power prices, has led us to accelerate our development rate - strengthening our development team with the aim of submitting more than 100MW of fully developed projects annually into the Planning system. In the past year we have submitted 66MW of such projects bringing our total awaiting determination to 140MW. Despite relentlessly increasing complexities in the UK's consenting regime we are confident that our high success rate on initial or appealed applications will continue.

The acceleration of our build rate will depend on some recycling of capital from operational sites back into new projects. This strategy will avoid us diluting value for existing shareholders or taking on excessive debt. The recent influx of financial buyers seeking lower risk, lower value transactions with predictable cash flows has enhanced the value of operating wind projects and our agreement reached this year with the world's largest fund manager BlackRock is an important part of this strategy. To date, REG has sold three operational wind projects to BlackRock totalling 28MW and a fourth is due to follow later this year. The agreement also accommodates a long term Asset Management Agreement under which REG will continue to administer sold projects. This predictable earnings stream from this new business should start to contribute strongly to revenues over the next few years.

Encouraged by mandatory reporting of greenhouse gas emissions we anticipate continuing growth in the trend of major corporates contracting directly with renewable generators, offering attractive alternatives to the big utilities' power purchasing terms.

Exploiting Synergies and Parallels

The nature of wind energy generation is creating a lucrative market for ancillary services. We have long anticipated the electricity grid system's need for back-up plant capable of fast and economic generation scheduling to meet hourly, daily and seasonal variations in electricity supply and demand. REG Bio-Power has had early success with the few power plants it has operated within National Grid Company's short term operating reserve (STOR) programme in which REG has the competitive advantage of ROCs. It has substantially expanded its nationwide oil collection network and secured good depth and tenor of Used Cooking Oil supplies. With several consented power projects available to build quickly we are poised to substantially increase our 8MW fleet when the anticipated opportunities in the STOR and wider capacity market become firmer.

Similarly there are synergies between the seasonal production patterns of solar PV plants and wind, which mirror each other thus offering opportunities where ground-mounted solar schemes can share land, grid connections and other infrastructure with wind projects. The government's recent launch of ROC schemes for large solar projects together with the continuing decline of solar PV's capital costs has led us to develop schemes which can be accommodated on our wind sites and we have begun procurement for our first consented project at Goonhilly Downs which will complete before next April to qualify for 1.7 ROCs/MWh.

We believe there are opportunities in parallel markets within and around the British Isles. With improved cross-border grid capacity and enhanced policy support, the Irish and Scottish markets look relevant to our future-proofing aims. Our joint venture in Northern Ireland expects to build a 6MW wind plant in 2014 and the UK's recent memorandum of understanding to source some of its renewable energy requirements from the Republic of Ireland is of interest.

Outlook

We believe that accelerating the build-out of our substantial pipeline of projects whilst the UK faces shortfalls in its electricity supplies and renewable energy obligations, serves shareholders and society alike. By continuing our recent policy to dispose of some assets to fund construction equity we will inevitably impact earnings but by 2020 we expect to have a sizeable pool of strongly cash-generative assets which will provide flexibility as we contemplate how best to deliver value to all our shareholders at the end of what must necessarily be a highly dynamic chapter in the UK energy story.

M J Liston OBE

Chairman

Chief Executive's Statement

Strategic Overview and Review of the Year

When we sold our Canadian business at the end of 2009, we set a strategy to commit at least GBP100m into new UK renewable energy projects over the next three years. We have successfully achieved this goal and in doing so have established a strong platform to continue growing shareholder value within the business. In this report I will review the last 12 months, set out our plans to continue our growth strategy and consider some of the risks that we face.

The UK energy sector is embarking upon an important long-term journey intended to replace much of the country's existing and ageing fossil fuel generation with a new fleet of nuclear, gas and renewable plants augmented gradually by more nascent energy technologies such as tidal stream and wave. These technologies will not only replace the UK's old coal burning power stations but also our fleet of ageing advanced gas cooled nuclear reactors, built mainly during the 1970s and 80s. The investment programme will also renew much of the UK's older distribution and transmission network which, starved of investment, is ill-suited to a distributed generation model. The Government estimates the cost of the programme to be in the region of GBP110bn over the next decade or so.

The introduction of the Energy Bill and through it the Electricity Market Reform ("EMR") will provide a range of technologies with an opportunity to participate in the future of the UK generation market. As an island nation the UK generates around 98% of its electricity from domestic plant and in 2012 the UK had an installed base of around 89GW of generating capacity, a reduction from around 91GW in 2010. As the older coal plant in particular shuts down over the next five years, OFGEM has warned of a possible capacity squeeze whilst the new plant comes online.

The new technologies are generally expensive to deploy, particularly nuclear energy and offshore wind. To use an analogy, the UK generation industry is somewhat like an ageing car. Twenty years ago when it was relatively new the repayments on the car were onerous but operational payments low. Now the finance has been paid off but we are left with a rather old and polluting vehicle, albeit still relatively cheap to run. If the UK chooses to maintain its energy status quo, the old car will inevitably carry on polluting, will require larger and larger payments to keep it running and will be at risk of breakdown. The car also requires fuel sourced primarily from commodity markets over which the UK exercises little control. Of course, there are benefits from operating our old car, the main one being that it is relatively cheap to run (that is unless it breaks down!).

To continue the metaphor, the UK has now decided to buy a new car, one that is invariably more expensive than the old one. Firstly it will, so far as possible, utilise indigenous fuels and it will, so far as possible, emit less CO2. This means, returning to the real world, the UK's new generation fleet will comprise a mixture of nuclear power stations and offshore wind complemented by rather cheaper options such as onshore wind, gas generation and biomass conversion (wood pellets). Together this mix of technologies is intended to reduce CO2 emissions, reduce the UK's reliance on overseas fuel and provide reasonable value to the taxpayer. However, reasonable value does not mean electricity prices will fall; rather they will rise over the next few years as the cost of building the new plant falls on energy consumers. The expectation of the Department of Energy and Climate Change is that electricity prices will not rise as fast as they otherwise would have done if the new plant had not been built. It is also worth remembering that previous generations of UK energy infrastructure tended to be funded from general taxation and were not, therefore, "perceived" by electricity consumers. Now the burden falls foursquare on consumers through domestic energy bills, obviously a very real and vocal issue in an era of falling real incomes.

So where does all this leave REG? Onshore wind is relatively inexpensive, certainly in the context of nuclear power and offshore wind and the technology, being mature, ideally complements REG's balance sheet and acquired skill sets. It also generates a reasonable value uplift between acquiring rights over a potential site and the eventual commissioning of a wind farm. Whilst complex to calculate, a wind farm in a good location can provide a satisfactory, albeit hard-earned, developer profit, analogous perhaps with the value uplift available on a new house or commercial property. Alternatively it can provide a long-term income stream, the reason why institutional investors are keen to acquire these projects, as demonstrated by the sale of three REG wind farms to a fund managed by BlackRock and establishment of a continuing partnership during the period.

The main barrier faced by the wind industry in the UK is our notoriously protracted planning regime and the not inconsiderable costs of achieving a permission to construct a wind farm. Quite clearly the planning process for a wind farm must be comprehensive given a project's interaction with its immediate environs. Much of our focus centres on juggling the many planning and grid issues and associated costs whilst attempting to calculate investor return. Compounding this is the ever moving cost of turbines (affected significantly by currency) and associated balance of plant. In the round, therefore, producing a successful and value accretive wind project is the result of an interaction of many different and ever moving variables.

There is no doubt that REG has a demonstrable ability to forecast and optimise the economic return on its wind projects and there is also no doubt that many others in the sector are, in the face of increasing Government and planning hostility coupled to a reduction in the Renewables Obligation support mechanism, finding life and business generally much tougher. As a company solely focused on renewable technology, this is increasingly presenting opportunities to REG as the number of new projects available to us has risen markedly over recent months. Indeed we find ourselves having to increasingly juggle the cost of developing our own projects against the obvious benefits of being able to invest in projects that have already had considerable time and resource dedicated to them by others.

Developing, building and operating our own portfolio of home-grown projects is a core competency, leveraged for opportunities in the wider renewables market. We achieved considerable success in these fields over the last year and I will discuss these in more depth below.

The change of focus for our bioliquids business, REG Bio-Power increasingly provides a clearer path to generating a risk adjusted return for this division that matches the return on capital delivered by our wind business. This year has seen REG Bio-Power continue to participate successfully in both National Grid's STOR and the peaking markets. Furthermore, EMR and the anticipated introduction of a capacity market provide enticing opportunities for flexible, non-polluting plant owned by REG Bio-Power.

Since REG built its first UK wind project back in 2006 we have vigorously placed community benefits at the heart of our development strategy. This has led to our projects establishing community based funds which now make significant payments to local causes and fosters greater goodwill than would otherwise by the case. These schemes are generally administered by trustees with the focus of donation into local projects. I am pleased to say that these schemes last year contributed over GBP300,000 and for the first time we have included a section in the Report and Accounts on some of the specific initiatives that REG projects have funded.

Looking to the future we have articulated a clear growth strategy to investors. Our now well established relationship with BlackRock provides a willing buyer for our larger wind projects while REG intends to retain its smaller projects to build up recurring profitability. A good example of this is our recently operational project at Burnthouse Farm in Cambridgeshire which is equity financed (i.e. without recourse to long term project finance). We believe this ownership structure affords us greater flexibility in selling the energy produced by these projects.

Wind - Operational Overview of the Year

REG's strategy of investing in its development team is now delivering significant growth of new projects. In January we announced the establishment of a partnership with BlackRock and the sale of two wind farms. The relationship with BlackRock gives REG the opportunity and flexibility to realise the significant value which has been created through developing well-structured wind farms and to recycle capital through future asset sales in order to accelerate its delivery of operational sites.

Additionally a key component of the relationship is the long-term Asset Management Agreement (AMA) under which REG's in-house team will continue, on competitive commercial terms, to oversee operations at the wind farms. The AMA also gives REG the potential to manage other sites acquired by BlackRock from sources other than REG's pipeline. The AMA is proving to be an excellent use of the experience within the company and an important contributor to our income. We are examining whether this resource can be leveraged to external parties.

During the year we completed construction on three new projects totalling 16MW at South Sharpley in County Durham, Burnthouse Farm in Cambridgeshire and Orchard End in Lancashire. South Sharpley has already been sold to BlackRock under our existing agreement and it is anticipated that Orchard End will be sold later this year. This latter project has endured many challenges during its construction, exemplifying the considerable expertise required in safely constructing, owning and operating a complex infrastructure asset.

At the end of the year we operated 51.15MW of our own wind projects having sold Sancton Hill (10MW) and South Sharpley (6MW) to BlackRock. Following the sale of the Goonhilly Downs wind farm, announced post our year end, REG now owns and operates 39.15MW of wind projects for its own portfolio which we expect to grow dramatically over the coming years.

I am glad to report that turbine availability remained pleasingly high at 97.2% this year, a reflection of the ongoing effort we have put into our maintenance and service systems and team. Wind conditions were broadly at a P50 level and so overall output was broadly on budget.

During 2013/14 we will start construction of two major new projects; the repowering of St Breock in Cornwall (10MW) and the construction of Ramsey II (8MW) in Cambridgeshire. Both projects are currently being tendered and we anticipate starting work on St Breock over the next few months. We anticipate that both will be operational by the end of next calendar year.

Wind - Project Development

Wind development is the key driver of value for REG shareholders and is the major area of expenditure for us. During the course of the year we achieved our target of submitting nine projects totalling approximately 66MW into the planning system. In total, we currently have planning applications for 140MW awaiting determination. The latest submissions included our first two Scottish projects in Fife and Dumfries and Galloway.

We also received planning permission for 24MW of new wind projects. Particularly satisfying were the repowering of our existing operational project at St Breock in Cornwall and a four turbine extension at Ramsey, in Cambridgeshire, as these were achieved at local authority level, removing the need for an expensive appeal to the Planning Inspectorate. Burnthouse Farm, also in Cambridgeshire, completes the trio and is now operational, a testament to the speed of our experienced construction division. Our project at Denzell Downs in Cornwall remains the subject of a legal challenge but we remain optimistic that this will be freed next year as it is palpably in a good location and was approved by Cornwall Council's planning committee in 2011.

We have committed significant resource to our development team in the last two years and this is reflected in our ambition in the current year to submit around 100MW of new projects into the planning system. We are well on the way to achieving this. These projects, where much of the capital has already been deployed, represent an enormous investment by your Company and, all things being equal, should generate a sound return for shareholders.

Bio-Power - Operational Overview of the Year

REG Bio-Power has made pleasing progress this year. In April we were awarded the East Anglia franchise operated by Arrow Group, a well-established, national waste oil collection business with an excellent long-term track record. Arrow Group collects around 30,000 tons of waste oil per annum and under its umbrella REG Bio's oil collection business has more than doubled its processed tonnage to an annual run rate of around 3,500 tonnes. This, and other initiatives, started to be reflected in processed oil volumes which totalled 2.2m litres (1.5m litres 2012). It is worth noting that our plant at Hockwold has now processed around 10m litres of waste oil since it was built in 2010. Our collections from civil amenity sites also increased and we now have our collection tanks at 520 local authority household waste sites around the UK.

The Environment Agency approved fuel which we recover from waste cooking oil is called LF100 and is utilised in our power plants at Bentwaters, Leeds North, Dover and Hockwold. These generation facilities now have over 80,000 of operational hours without major mechanical incident. We are examining ways to leverage the global patents we hold over the process of converting waste cooking oil into a fuel.

We are currently finalising contracts to be able to construct a much larger power plant using the experiences gained from our existing operations. The site, based in Yorkshire, will operate as an 18MW peaking and STOR plant at a total capital cost of around GBP6m, financed partly by debt. We believe that UK power prices may increase substantially over coming years, a result of the major infrastructure upgrades that are required. We believe that owning and operating highly flexible renewable energy plant running on recycled waste should prove a valuable investment for us.

Community

The Government's desire to see wind farm operators provide tangible benefits to communities hosting turbines has been a strong theme of this year. This is a logical extension of the Localism agenda, now enshrined in law, and reflects the need to overcome what has become entrenched opposition to the technology in some quarters in order to meet the UK's targets for renewable energy deployment.

The historic levels of opposition to wind farm applications and the consequent low consenting rate at local authority level means much of the emphasis on thorough engagement with communities directed by the Localism Act was already accepted as good practice by the majority of developers. Provision of community payments based on the size of the installation had also become standard practice. Following a DECC consultation the Government raised the recommended level of community benefit payments for onshore wind projects to GBP5,000 per MW per annum of installed capacity, up from the previously agreed minimum of GBP1,000 per MW.

We firmly believe that improving relations with local communities is an important element in securing the longevity of the onshore wind sector and we aim to maximise the impact of our community benefit offer. A good example can be found in our successful planning application at Ramsey in Huntingdonshire this year. By identifying local initiatives early in the development process we were able to garner sufficient support for the extension project, presenting a compelling case to the planning committee and achieving local consent. Discussions are ongoing with organisations around the country to ensure future contributions can deliver as meaningful benefits as possible to specific areas, taking into account local circumstances, aspirations and priorities.

Across our operating fleet over the period, we have committed more than GBP300,000 to support local communities. This has, among a wide range of projects, backed the return to use of a previously dilapidated village hall in East Yorkshire, the establishment of drugs and alcohol awareness sessions in South Yorkshire and sports facilities in County Durham. Additional funds are being established on more recently consented sites, always involving local people in the decision-making process.

Continued contact with local representatives through the construction and operational phases of a wind farm also yields more harmonious relations than would otherwise be the case. Good practice throughout the life of a wind farm also inspires local people to act as advocates for the technology. This is particularly valuable for reassuring residents in areas about the reality of living with turbines nearby.

Our Used Cooking Oil collection business Living Fuels also recognises the value of working with communities. While a less contentious operation, Living Fuels faces the challenge of building consumer awareness of the availability of facilities for recycling cooking oil.

Charity campaigns in Liverpool, Suffolk and Wiltshire have succeeded in boosting the profile of the service in local areas as well as raise much-needed funds for worthwhile causes. The first saw a donation made to Liverpool's Alder Hey Children's Hospital, based on the amount of oil collected from tanks across Merseyside. Following a sustained media campaign, the charity drive not only provided a significant sum to the hospital's appeal, but also resulted in a threefold increase in the amount of oil collected.

A follow-up campaign in Wiltshire, working closely with the local authority and its contractor, attracted significant positive local and regional news coverage. This increased awareness led to four times more oil being deposited in Living Fuels tanks in the county than in the previous quarter and more importantly, a contribution for GBP1,300 to the Wiltshire Air Ambulance Service.

The Political Environment

The current period has been dominated by the Energy Bill and its fitful passage into legislation. We believe EMR should have tangible benefits for our business in the longer term primarily through offering highly credit worthy contracts. That being said we remain disappointed that DECC has stubbornly adhered to a 15 year feed in contract which does little to lower the overall cost of capital for the sector. Indeed it is interesting to note that when REG was building projects in Ontario, the Government there actually increased the tenor of contracts to 20 years (and in some cases 25 years). That is because the ultimate owners of energy projects, which will increasingly become pension and other institutional funds, require as long a stream of income as possible and will fund accordingly. So in essence a pension fund will apply a lower discount rate in funding a project with a 25 year income stream rather than a 15 year income stream. Or at least that is the conclusion that Canada reached where almost all utility projects are now financed by Pension and other funds at very low cost to taxpayers there

Despite this minor disappointment, we are broadly pleased with the support that the UK government is committing to the UK renewable energy industry. The Strike Prices for renewable technologies are intended to make the UK market one of the most attractive for renewable energy developers, whilst minimising cost to the hard pressed consumer. We welcome and support these initiatives which should add a measure of certainty and help boost home-grown sources of clean secure energy.

Group Financial Highlights

Wind speeds were broadly in line with P50 estimates and this resulted in revenues of GBP13.4m (2012: GBP12.1m), with adjusted EBITDA of GBP12.3m (2012: GBP2.7m) including the profit of sale of the Sancton Hill and South Sharpley wind projects of GBP9.1m. We recorded a pre tax profit of GBP5.8m (2012: pre tax loss of GBP2.0m).

Our central administration costs were held in line with inflation at GBP1.7m (2012 - GBP1.6m). With the wind development business being the key driver of growth for the Group, we have committed significant resources to our development and construction teams in the last year in order to deliver increased MW in to the planning system. A corresponding increase has been seen in wind administrative expenses to GBP3.5m (2012 -GBP2.7m). Development costs relating, to early stage evaluation of sites along with the impairment of sites withdrawn from the pipeline, was kept in line with prior years at GBP1.4m (2012 - GBP1.4m). Impairment charges relate to site specific events that result in projects no longer meeting our threshold return requirement.

Growth in the cash flow from operating activities, combined with the debt refinancing and subsequent sale proceeds of Sancton Hill and South Sharpley, resulted in a net increase in cash of GBP8.0m (2012 - decrease of GBP5.3m) during the year. We closed the financial year with free cash of GBP16.1m (2012 - GBP9.6m) along with restricted cash held as security against project finance debt and construction letters of credit of GBP8.2m (2012 - GBP8.6m).

Health and Safety

I believe that REG's health and safety performance has to be our top priority. Making sure that our employees work in a safe environment is absolutely critical to the credibility and success of our Company. We also operate in an environment where members of the public may come into close proximity to our projects, both during construction and also operation. In this regard we have undertaken a major exercise with the leading health and safety consultancy ARMSA in order to identify any areas of weakness within the Group. As a result we have continued to develop our current practices with a particular focus on construction and operation. We have also reviewed REG Bio's operational practices, an area of focus given the vastly increased oil volumes we are now processing. We believe that the current health and safety practices that we are employing will continue to maintain a safe environment both for our own employees and also the wider public.

Staff

REG's employees never fail to inspire, often under very trying conditions - not everyone likes wind projects! But they ceaselessly carry out their jobs with a cheery disposition. Without their efforts REG would not be the organisation it is. So thank you.

Post year end activity

Post the year end we completed the sale of the Goonhilly Downs wind farm to BlackRock for a total consideration of GBP25.1m releasing around GBP10.6m of cash back to REG and reducing borrowings by GBP14.5m. These funds, together with some of the cash on our balance sheet will be utilised for the construction of St Breock, Ramsey and a number of other projects that we are hoping to start work on during 2014.

Outlook

Your Company remains in sound financial health and by the time we have completed the sale of the Orchard End wind farm we should have free cash resources of over GBP30m. It should be remembered that we are investing a great deal of capital at present both on building our two new projects at St Breock and Ramsey, and also on meeting our target of submitting around 100MW of new projects into planning in the current financial year. The main risk for the business continues to be the debate over renewables generally and onshore wind in particular. However, onshore wind should remain a key component of the UK's energy mix as it is the main, large scale and well tried renewable technology able to meet the Government's key ambitions of sustainability, price and energy security.

Andrew Whalley

Chief Executive Officer

Consolidated Income Statement