Chief Executive's Review

Michael McNicholas

Earlier this year, I visited Post Rock, Kansas. Two hours west of Wichita, in a prairie grassland setting with wide open spaces, a team of dedicated professionals from Wind Capital Group, working closely with worldclass engineering and construction teams from RMT Construction and General Electric, were methodically and carefully assembling 134 wind turbines on a 25,000 acre site, paying close attention to safety for all involved.

The 201 MW Post Rock project represents several years’ work – from identifying the site and wind resource, through environmental planning and permitting, to winning a power purchase agreement, securing wind turbines and financing, to eventually launching a major construction project. The people involved over that time have been developers, engineers, finance and real estate experts, even a PhD Meteorologist. The team encountered and overcame many hurdles along the way – from careful management of environmental concerns to achieving funding in one of the most challenged financing markets ever.

In the next few months, the wind turbines across the prairie will connect to the electricity grid and will transmit wind power to supply more than 70,000 homes and businesses – and will continue to do so for the next 25 years or more.

Post Rock is just one example of a valuable asset developed and built by an NTR company. It also characterises the progress that NTR has made during this fiscal year. At the start of last year, we set out our strategy and action plan for the business. The plan comprised four clear steps to be achieved over a three-year timeframe (see diagram below). The focus of the first year of the plan was on preserving cash, consolidating the portfolio and bringing greater focus on operating performance right across the group.

I am pleased to say that we have made good progress against the plan in its first year. When the year began, we had significant demands for capital on NTR from our development platforms and we were challenged to deliver performance from our operating companies in depressed economic and trading environments. In 2011-12, we have significantly reduced the funding demands on the centre, and are steadily transforming our businesses from development investments into solid operational assets. Revenue is stable, underlying EBITDA has doubled and losses, although still sizable, are significantly lower. I am also pleased to report that during the year we invested €107 million of capital, growing tangible assets and adding to the value of our portfolio.

While we have made good progress and improved the risk profile of the company, I do want to sound a note of caution. It is just the first year of a three-year plan; we have a lot more work to do and many risks and challenges remain. The global economic outlook has not improved, capital markets remain extremely difficult and the economies in which we operate show little signs of recovery or growth. Against this background we will need to continue to stay focused on delivering the plan we have set out for the company.

NTR’S Four Step plan

four year plan

Financial Results

In this Annual Report, we felt it would be useful to include a Finance Review, which provides a more detailed explanation of the financial results. I will touch briefly on some of the key points here.

Group revenue from continuing operations for the year ended 31 March 2012 was €327.0 million, compared to €329.4 million for the prior year. Considering that 2011 revenue included €12 million of revenue from Roads assets that were sold during the year, this represents a year on year revenue increase of €9.7 million. EBITDA from continuing operations doubled to €17.4 million (2011: €8.7 million).

Impairment charges of €62.9 million were recorded, of which €35.9 million is in respect of waste sector landfill assets and goodwill.

Group losses for the year decreased to €88.8 million, down from €381m in 2011.

Total assets of the Group at 31 March 2012 increased to €1,017.1 million from €996.1 million. Tangible fixed assets, including investment in wind farms and waste processing, increased by €221.2 million. This represents an increase from 44% to 65% of total assets of the Group. Total equity attributable to NTR shareholders was €245.2 million.

The Group retained cash resources of €43.7 million at 31 March 2012 and, importantly, does not carry any debt at the centre.

Business Overview

Wind Capital Group
This was a very significant year for Wind Capital Group (WCG), which saw NTR invest in building out its operating platform, as the business makes the important shift from project development to becoming primarily an operating company. As part of the ongoing consolidation of our portfolio, NTR also invested to increase our shareholding in Wind Capital Group, from 62% to 97%.

The existing 150 MW Lost Creek wind project completed its first full year of operation. It has exceeded performance expectations and delivered strong growth in revenues and EBITDA, helped by a good wind regime combined with excellent operations and plant availability.

In January 2012, we announced the successful financing of the Post Rock wind energy project with a total funding of US$350 million put in place with top tier financial institutions. This was achieved in a difficult capital markets environment and was supported by additional capital from NTR. Construction of Post Rock is currently on schedule and we expect commercial operation by the end of the year. This will bring the total operating assets of WCG to 351 MW.

On the development side, the business context for WCG has seen the wind industry in the US retrenching this year, largely due to uncertainty about the renewal of the Production Tax Credit (PTC), which is critically important in financing new wind projects and is due to expire in December 2012. WCG has been at the forefront of efforts to ensure the PTC is extended, and although we are optimistic that it will be renewed, the timing is unclear, leading to slower development across the sector and reductions in planned build for 2013. WCG has responded by carefully managing development spending and focusing on those projects in its pipeline that are best positioned to take advantage of any PTC renewal.

Wind Capital is less impacted by this regulatory uncertainty as it will own and operate a minimum of 350 MW of wind assets in 2013. This makes it a solid business and provides NTR with the option, but not the necessity, to invest in US wind in the future, should the regulatory environment incentivise capital investment.

Greenstar Recycling (North America)
Greenstar Recycling, wholly owned by NTR, is now the largest independent recycling platform in the US. Through its strategy of building and operating state-of-the-art single stream recycling facilities, it has established a wide footprint in key secondary metropolitan markets in Texas, the Midwest and the Northeast.

The US recycling market is continuing to grow, with recycling rates still below their potential and a persistent push from consumers and municipal authorities to increase recycling. Greenstar Recycling’s strategy is focused on driving higher utilisation rates in existing markets, while building additional regional strength.

During the year, Greenstar Recycling invested $7 million in a new single stream recycling facility, which opened in June 2012, in Akron, Ohio. Greenstar Recycling was awarded the recycling contract by the city, financed and built the 15,000-ton facility and will operate it to serve Akron and surrounding areas.

After a very encouraging first half of the year, Greenstar Recycling EBITDA was directly impacted by commodity prices, which fell more than 30% in November 2011. Prices remain volatile. While the business has a good set of assets and has an attractive footprint in the US, we believe there is further scope to improve the operational efficiency of the business. The Greenstar Recycling business plan for the coming year has a strong focus on local markets, driving volume growth and improving operating performance.

Greenstar (Ireland)
Greenstar Ireland performed well in a very challenging environment. During the year, Greenstar prepared for changing market dynamics in waste disposal outlets by establishing export capabilities across three of its facilities and by growing production of its solid residual fuel product, which is used as an energy source in major industrial kilns. Greenstar also enhanced its waste to energy platform with the further development of a number of landfill gas projects.

The Irish waste market continues to suffer from the overhang of unresolved policy addressing the future of household collection services, whether or not a proposed waste fuelled incinerator in Dublin will proceed, and insufficient guidelines to control the quality and quantity of waste being exported to other markets. This is all at a cost to the future development of sustainable waste recovery infrastructure within the country.

These issues in the Irish market, and the resulting continued decline in landfill prices, have led Greenstar to make a strategic decision to close its operating landfills in the next three years. Two landfills will be mothballed this calendar year and, unless prices improve, Greenstar’s landfills will remain closed, up to ten years ahead of schedule.

Greenstar has been evaluating the options for refinancing its debt and discussions with its lenders are ongoing.

Other businesses

Celtic Anglian Water (50% owned by NTR), which provides world-class water and waste treatment services to clients in Ireland, continues to perform strongly and has maintained consistent profitability.

With a view to investing in other areas of the portfolio, NTR made a strategic decision to reduce its shareholding in NASDAQ-listed Green Plains Renewable Energy (GPRE). During the year, NTR sold 10.7 million shares of its GPRE common stock, releasing €53.9 million of capital, which supported further investment in US wind. Further proceeds of €20.4 million are due from GPRE in March 2013. Our shareholding is now at 2%.

Separately, we reviewed our position in BioProcess Algae (BPA) against our current strategy and concluded that the venture was more closely aligned with GPRE’s strategic interests than NTR’s. Shortly after year end, we agreed to sell our share in BPA to GPRE, one of the joint venture founding partners, realising a small profit on our invested capital.

NTR continues to have Irish Roads joint venture interests in Portlaoise and Waterford. Traffic volumes are still lower than projected, but Portlaoise is experiencing reasonable traffic volumes and road improvements in Waterford should generate increased traffic flow in the medium to long term.

Building for the Future

NTR’s core capability lies in developing and building long-term infrastructure assets, such as wind farms, recycling plants or toll bridges. The initial capital investment required is high, but over time these assets – which provide needed services to the economy and communities – generate strong returns for shareholders. Today, we have valuable infrastructure assets in our wind energy and waste management businesses. However, protecting and growing the value is challenging, with world economies stagnant and capital markets constrained.

In this context, delivering against our three-year plan is even more important. We will maintain our focus on the first two steps of the plan, as the fundamentals for NTR continue to be cash preservation and driving strong operational performance. A number of initiatives currently underway will further improve our framework for operational control across the Group.

Having invested over €100m in assets this year, we have delivered in terms of growing the underlying value of the portfolio. We will continue to take a disciplined and patient approach to evaluating any future capital investment opportunities. As is to be expected in the current finance markets, we have more investment opportunities than readily available capital, so we will carefully consider how we deploy the funds available to us.

One prime objective is to ensure that we are in a position to make investments and fund our businesses at a time of our choosing, when the business case meets our risk and reward criteria. We apply a rigorous investment framework to every decision and will be taking steps to ensure that we secure sufficient sources of funding for any future investment plans.

During the year, we sought to live up to our commitment to provide regular and clear communication to our shareholders and the wider investment community about the performance of the company and progress against our plans. We remain committed to continuing to meet this requirement and to actively listening to your input regarding the company.

We have made good progress in the first year of our plan, reducing the risk profile of the Group, rebalancing the portfolio of investments, and improving the operating performance of our businesses. We have also invested significant capital and grown the value of the Group. My management team and I remain focused on our plan and on delivering the goals we have set for the business. By doing so we are confident that we will secure the value of the existing portfolio and create options to grow the value of NTR for its shareholders.

Michael McNicholas
Chief Executive

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