On 2 January 2019, Australian energy company ERM Power Limited (ASX: EPW) announced that it has completed the sale of its US business Source Power & Gas to Direct Energy Business LLC for a total consideration of US$27 million (A$38m). Following this news, the share price of the company decreased by 1.47 percent as on 2 January 2019.
The sale was first announced on 15 October 2018 when Direct Energy signed an asset purchase agreement with ERM Power’s US subsidiary Source Power & Gas to purchase its electricity retailing portfolio and related assets for a total consideration of US$27 million (A$38m).
As per the earlier announcement, the Net after-tax cash proceeds of the sale will be approximately US$23 million (A$32m). This sale transaction supports ERM Power’s focus on its core operations of commercial and industrial electricity Retailing, peak gas Generation and Energy Solutions in Australia.
As per ERM Power’s CEO Mr. Jon Stretch, this sale transaction will help the company to maximize the shareholder value and focus on value creation in the Australia business operations, in particular, the growing Energy Solutions operations. It is expected that the sale proceeds will be used to make investments for the company’s growth and to provide a return to shareholders as appropriate. The company will further update the market in its FY2019 interim results announcement which is scheduled in February 2019, and for the purpose of the company’s reporting in FY 2019, Source Power & Gas is going to record a loss of around US$6 million (AUD$8.5 million) (unaudited).
At the time of announcing the sale, Mr. Jon Stretch informed that the Company undertook a comprehensive review which determined that the best strategy for realizing the shareholder value is to divest US operations. The strategic review also concluded that to best serve the shareholder value the Company will have to focus on its Australian business.
In FY 2018, the Company’s earnings increased by 25 percent to $97.5 million (EBITDAF) as compared to the previous year. Further, the company reported an Underlying Net Profit After Tax of $30.2 million in FY 2018 which was $46.3 million higher than FY 2017. In FY 2018 the revenues from the Company’s Energy Solutions business increased by 55 percent to $18.9 million, and its Australian Retail business performed well with sales at a record 19.2TWh.
In November 2018, the company finalized the acquisition of independent engineering group, Out Performers, which is an excellent fit for the company as it brings large-scale industrial project expertise to the company’s existing suite of energy solutions.
Meanwhile, the share price of the EPW increased by 8.30 percent in the last six months as on 31 December 2018. EPW’s shares traded at $1.542 with a market capitalization of circa $397.62 million as on 2 January 2019 (AEST 1:03 PM).
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