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Power price recovery boosts John Laing Environmental NAV

15
2017
June

Power price recovery boosts John Laing Environmental NAV – John Laing Environmental says its NAV at 31 March 2017 was 100.1p, up from 96.7p at 31 March 2016. They say that the increase in NAV per share was due primarily to the increase in both short-term electricity prices and forecasts for longer-term prices during the year and at the year end, leading to an improvement in the portfolio valuation of the renewable energy assets. This was offset to an extent by the poor wind conditions reported by all wind farm operators during the winter, leading to lower than anticipated revenues during that period, and the impact on future revenue projections and hence valuations of the final proposals by Ofgem regarding the payment of Triads for renewable energy assets.

Profit after tax for the year was GBP25.6 million (2016: GBP6.2 million) resulting in earnings per share of 9.31p (2016: 3.01p). The Directors have recommended and declared a total dividend in respect of the year ended 31 March 2017 of 6.14p (2016: 6.054p).

Cash received from the portfolio assets by way of distributions, which includes interest, loan repayments and dividends, was GBP25.4 million during the year. After operating and finance costs, cash flow from operations of the Company of GBP19.0 million covered the cash dividends paid during the year of 6.12p by 1.17 times and the declared interim dividends applicable to the year of 6.14p, 1.06 times. They are targeting a full year dividend for the year ending 31 March 2018 of 6.31p.

Overall generation from the renewable energy portfolio has been below budget, with the wind assets achieving overall generation 15% below budget following poor wind conditions during the winter period, and the solar assets achieving overall generation 12% below budget.

5% of the solar shortfall was predominantly due to low solar irradiation and 7% due to two asset–specific issues which I reported on in my half-year statement. The main asset-specific issue was on the Branden project, which experienced a number of technical issues with inverters and string connectors during the year. This led to periods of intermittent unavailability and lower than expected generation during the year. After investigations and discussions with the contractors, replacement parts were installed under warranty in April, May and June 2017 and we will continue to monitor progress following this remedial work.

Monksham experienced a lightning strike in late August that initially rendered the whole solar park offline following damage to switchgear. The asset manager, in conjunction with the operations and maintenance provider, managed to bring 75% of the park back to generation for September 2016 pending delivery of replacement components, and the park was restored to full operations in December 2016. Insurance covered substantially all of the costs and losses associated with the lightning strike.

The results from our renewable energy assets are dependent in part on the level of electricity prices, which have trended noticeably lower since the time of IPO in March 2014, although they have shown some recovery during the financial year from the very low levels experienced during the winter of 2015/16. Compared to the assumptions used in the portfolio valuation at 31 March 2016, on a time weighted average basis, the increase in the electricity price assumptions is approximately 6.9% over a 25-year period. JLEN has taken advantage of the improvement in short–term electricity price forecasts during the year by fixing prices under existing PPA arrangements for a significant proportion of the renewable energy portfolio for periods of up to 24 months. The waste and wastewater processing assets are not affected by the level of electricity prices.

For the waste and wastewater processing assets, financial performance has been in line with expectations and volumes for the waste assets have been broadly in line with expected levels with wastewater volumes being below budget due to the dry winter. The facilities at the Frog Island facility (part of the ELWA project) which were affected by a fire in August 2014 returned to full operations in August 2016 and during the period when operations were affected, the contract with East London Waste Authority continued to be fulfilled with no impact on distributions to the company.

JLEN : Power price recovery boosts John Laing Environmental NAV

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