On 15 October 2018, ERM Power Limited (ASX: EPW) announced the sale of its US business Source Power & Gas to Direct Energy Business LLC for A$38 million. Following this news, the share price of the company increased by 2.5 percent as on 15 October 2018.
As per the release, Source Power & Gas is a US subsidiary of Direct Energy and ERM Power. In order to this, Source Power & Gas has signed an asset purchase agreement for the electricity retailing portfolio and related assets of Source Power & Gas. The sale is expected to close on 30 November 2018 and it is subjected to usual completion conditions and adjustments. Net after-tax cash will be accounted ~A$32 Mn after the sale of termination and transaction costs. Assessment of the use of sale proceeds will be aligned with the Company’s capital management framework which includes investment for growth and return of capital to shareholders as appropriate.
For FY 2019, Source Power & Gas is expected to record a loss of approximately A$8.5 million which includes operating results to completion and wind-down and transition costs to June 2019. The on-market share buyback of up to A$20 million in the issued capital which was suspended during the US sale transaction process, will be resumed on 26 October 2018 after the Annual General Meeting.
On 28 September 2018, the company announced the finalization of the acquisition of independent engineering group i.e., Out Performers. This acquisition is in line with the company’s previous announcement regarding the investment of $40 million in organic and opportunities in Energy solutions. The net profit before tax of Out Performers on a standalone basis was $2.3 million in FY 2018 and it is acquired on a debt-free basis.
In FY 2018, ERM Power produced strong financial results which reflects a good year of growth and record sales for the Australian businesses. Due to the strong performance of the Australian retail business, Oakey and Neerabup power stations and increasing earnings in the growing Energy Solutions business, the underlying EBITDAF (Earnings Before Interest, Tax, Depreciation, Amortisation and Fair value adjustments) from continuing operations of the company increased by $19.3m to 97.5 million compared to the previous year. The underlying NPAT of the company increased by $46.3 million to $30.2 million in FY 2018 compared to the previous year’s loss of $16.1 million. However, due to the unrealized net fair value movement in financial instruments and inclusion of losses incurred from the Group’s discontinued US business, the Statutory NPAT was a loss of $80.7 million in FY 2018.
EPW’s shares traded at $1.640 with a market capitalization of circa $408.67 million as on 15 October 2018 (AEST 2:51 PM).
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