Finance Review

Neil Parkinson

Overview of Financial Results

We are committed to providing transparent communication to shareholders, thus the inclusion this year of a Finance Review in our Annual Report. The mix of our businesses, spanning from project development to operations, combined with varying shareholding levels, controlling interests, joint venture arrangements, etc., means that our results at a glance can appear somewhat complicated. This Finance Review is intended to supplement the Chief Executive and Chairman’s Reviews and to provide further explanation to shareholders of our results and the underlying accounting treatments adopted in respect of significant items in our annual accounts, the funding of the Group and our management of business risk.

On an overall basis, Group revenue was stable year on year. At €327.0 million, revenue was marginally lower than 2011, down €2.4 million (1%). Included in the 2011 results is €12.1 million of revenue relating to Roads assets which were disposed of during that year and which, if excluded, would reflect a revenue increase, on a like-for-like basis, of €9.7 million (3%).

EBITDA is one of the key metrics by which we judge the performance of our operating subsidiaries. EBITDA from continuing operations doubled from €8.7 million in 2011 to €17.4 million in 2012. This reflects growth in earnings in Wind of €6.7 million, reflecting a full year’s contribution from the Lost Creek wind farm; lower losses recognised in respect of Roads, contributing a €9.6 million increase in earnings; a reduction in central costs, contributing €10.2 million; offset by a contraction in earnings in Waste of €17.7 million. Earnings in Waste were impacted by significantly reduced prices for recyclables in the second half of the year, the planned closure of the KTK landfill in Ireland, and price pressure driven by below-cost selling by landfills in Ireland.

chief executives financial results

Although impairment charges were reduced from last year, total impairment charges (on continuing and discontinued operations) of €64.2 million (2011: €195.7 million) were recognised in the current year and are commented on in greater detail below.

Other operating income for the year was €3.7 million (2011: €22.5 million), with 2011 including a €20.3 million profit on the disposal of certain of the Group’s Roads businesses.

Share of losses from joint ventures of €1.0 million is €6.7 million lower than last year due to the discontinuation of recognition of losses from CRG Waterford and CRG Portlaoise following the impairment of these assets, which are now fully impaired. Traffic levels for CRG Portlaoise are slightly behind plan while those for CRG Waterford are significantly behind plan.

Net financing costs decreased by €10.8 million (33.1%) to €21.9 million in the year, mainly due to lower tax equity related financing costs in Wind Capital Group and the positive impact of net foreign exchange gains.

Profit from discontinued operations of €46.3 million (2011: loss of €214.9 million) arose from the release of provisions no longer required in respect of the sale of Airtricity (€25.3 million) and the de-recognition of Solar liabilities (€60.5 million), offset by a loss on the disposal of part of the Group’s shareholding in Green Plains Renewable Energy, Inc. (€39.1 million). The sale of these shares generated proceeds of US$99.9 million for the Group.

Taking all of these items into consideration, the resulting loss for the year decreased to €88.8 million from €381.0 million in 2011. The loss attributable to equity holders was €109.4 million (2011: €280.2 million).

Impairment Charges

Impairment charges and fair value adjustments on continuing operations of €62.9 million (and €1.3 million on discontinued operations) were recognised during the year. The charges reflect the persisting downturn in the Irish economy, particularly in respect of Greenstar Ireland. We felt it was prudent to adopt a conservative view of asset values in these circumstances. In addition, a landfill closure charge of €8.9m was made in respect of Greenstar Ireland, which is included within operating costs.

Impairment Charges on Continuing Operations

Total €’m
Greenstar Ireland 34.8
Imagine Communications Group 21.5
Wind Capital Group 5.6
Greenstar LLC 1.0
Total 62.9

Greenstar Ireland
Impairment charges of €34.8 million arose in the current year in Greenstar Ireland, which reflect the market valuation placed on the business arising from its ongoing refinancing process.

These impairment charges include two main items. The principal component is a €19.7 million charge against the carrying value of the company’s landfill assets. The company has assumed the mothballing of two landfills in the calendar year 2012, with all operating landfills closed by financial year 2015. This necessitates an acceleration of restoration and aftercare provisions, essentially bringing these provisions forward by up to ten years and providing for the aftercare on these landfills now. The accelerated aftercare provision of €8.9 million is reflected in operating costs rather than recorded as an impairment charge. These charges arose primarily due to significant market changes which occurred after the year end, in May 2012.

The second component of the impairment charge arose in the company’s collection and transfer division. The decision was made to impair the goodwill in this division in the amount of €13.8 million, as management reduced the earnings forecasts due to the lack of growth projected for the Irish economy. The essential infrastructure is in place to enable the division to reach its growth targets over time as the economy recovers.

Imagine Communications Group
NTR partially impaired its investment in Imagine during the year ended 31 March 2011. During the course of 2012, Imagine did not conclude a sales process and NTR did not participate in subsequent investment funding rounds. Therefore, a further impairment charge of €21.5 million on the carrying value of the Group’s investment in Imagine was taken during the year, reducing its carrying value to nil.

Wind Capital Group
An impairment charge of €5.6 million arose on Wind Capital Group’s property, plant and equipment during the year, as is standard practice, representing normal write-offs on projects that are no longer being developed or which will be delayed.

Greenstar North America
An impairment charge of €1.0 million arose on the fair value movement of goodwill and certain minor assets held for sale.

Profit from Discontinued Operations

A profit of €46.3 million was recorded in respect of discontinued operations for the current year. The details, as reflected in note 4, are summarised in the table below.

Total €’m
De-recognition of Solar Liabilities 60.5
Release of Airtricity Sale Provisions 25.3
Loss on Disposal of Green Plains Renewable Energy (39.5)
Profit on Discontinued Operations 46.3

Solar
In 2010 and 2011, the Group recognised significant impairments and provisions in respect of its Solar division. The principal business in that division, Stirling Energy Systems, Inc. was unsuccessful in attracting financing or a buyer and entered Chapter 7 bankruptcy protection in September 2011. Maricopa Solar, LLC, also filed for Chapter 7 protection in January 2012. This did not involve any additional cash costs for NTR above those provided for in the 31 March 2011 financial statements, and resulted in the de-recognition of various provisions and liabilities following the loss of control by NTR in the total amount of €60.5 million.

Airtricity
Provisions were held in respect of the sale of Airtricity which were deemed no longer necessary. This facilitated the release of €25.3m of provisions in the current year.

Green Plains Renewable Energy
The Group sold two tranches of shares in Green Plains Renewable Energy, Inc. (‘Green Plains’) during the year, raising US$99.9 million, of which the receipt of US$27.2 million was deferred to March 2013. A consolidated net loss on disposal after tax of €39.5 million arose.

Current Funding and Liquidity Position

The Group made investments of €107 million in the year and had a cash position of €43.7 million at 31 March 2012, compared to €112.4 million at 31 March 2011.

The Group made the strategic decision to redeploy a significant portion of its capital from ethanol, principally in order to increase its shareholding in Wind Capital and subscribe for equity in the Post Rock wind farm. This decision led to the disposal of two tranches of shares held in Green Plains during the year. The first tranche was sold in September 2011 realising US$28 million (€20.3 million) with a second tranche being sold in February 2012 for US$71.9 million (€53.8 million). In respect of this second tranche, US$44.7 million was received at the time of the sale while the remaining US$27.2 million is due to be received from GPRE in March 2013.

During the year, NTR invested €73.0 million in Wind Capital Group, which included increasing our shareholding in the company from 61.99% to 96.54%. Wind Capital is well on track to realising increased operating cash as the Post Rock wind farm comes on line, combined with cash flows from the existing Lost Creek and Deere wind assets.

In the closing months of 2011, as Wind Capital Group was raising financing for its Post Rock wind facility, financial market uncertainty deepened due to perceived global economic risk. As a result, project finance lenders required greater equity contributions from Wind Capital and NTR. Upon completion of construction of the Post Rock wind farm in late 2012, this additional equity is due to be returned to NTR.

During the year, to facilitate the successful execution of multiple concurrent transactions, including the Post Rock financial close, Tom Roche offered a short-term bridging loan facility of €10 million, unsecured and interest free. The facility strengthened NTR’s negotiating position and Group cash reserves, pending the completion of the sale of the second tranche of GPRE shares. This facility was utilised in January 2012, placed on deposit and returned on 13th March 2012.

Other significant investments made during the year included the previously committed obligations for Roads (€23.2 million) for completing the Portlaoise toll concession investment and Greenstar Ireland (€8 million), in respect of deferred payments on its Veolia acquisition.

Funding Outlook

During the year management has keenly focused on cash preservation at all levels in the Group, specifically on moving each subsidiary towards a self-funding position. For example, Wind Capital Group will achieve this self-sustaining position in mid 2013, except where new equity may be required at NTR’s discretion to enable new wind farms to be brought from development to completion.

The projected funding requirements of the Group are carefully managed by the Group executive, in close consultation with the management teams of individual subsidiaries. We ensure that the potential funding requirements and cash generating capabilities of each entity are fully understood and optimised.

We adopt a prudent cash forecasting approach to the planning of our business. The capital markets in which we operate are currently constrained and uncertain, reflecting the ongoing concerns over macro-economic trade levels and Eurozone stability. This may make it harder for us to access additional capital to pursue all of the opportunities open to us for investment. We have taken steps to ensure that sufficient funds and sources of funds are available for our operations and for any investments which we may pursue.

Borrowings and Credit Facilities

There is no debt held directly by our holding company, NTR plc. All debt is at subsidiary level, on a ring-fenced basis with no recourse to NTR plc. An analysis of the components of subsidiary interest-bearing loans and borrowings, together with information on the currency and maturity profile of our debt, utilisation of facilities available and interest rates applicable to the debt are set out in note 27 to the financial statements.

The Greenstar Ireland banking facility refinancing was not completed by its targeted completion date of 30 June 2012 and discussions continue at time of writing.

Financial Risk Management

The Board sets the Treasury policies and objectives of the Group, which are then monitored by the Audit Committee, which include controls over the procedures used to manage financial markets risk. With the significant volatility in the Eurozone during the year, the company has made appropriate adjustments to its holding policies to minimise the associated risks, including diversification of funds across the highest rated banks as well as across currencies, USD and Euro, as appropriate, based on our expected geographical use of funds.

Risk Management Framework

The Board has approved the Group’s risk management policy and guidelines and a risk management framework has been implemented to identify and manage the various risks facing each of the Group’s businesses. The risk management system has become an important management tool, addressing changes in risk as and when they occur.

Conclusion

2012 has seen both a significant investment in high quality tangible assets and an improvement in operating EBITDA. The risk profile of the Group has been improved by actions taken this year and it is no longer exposed to large obligatory development commitments.


Neil Parkinson
Chief Financial Officer

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