On 16 August 2018 Green & Smart Holdings, the renewable energy group that produces biogas from waste in Malaysia, put out a number of statements that shareholders were probably nervously awaiting. The AIM listed company’s shares had been suspended for some months (and its sharp price totally becalmed) because the company had been dilatory in issuing its final results for 2016/2017.

The good news on 16 August was that the final results for the year ended 30 September 2017 were at last issued and simultaneously the AIM suspension was lifted. But that was not all. In an unusual move the company also released its interim results for the six months ended 31 March 2018. The not-so-good news in them was that they reiterated the theme that had first become evident in early 2017– namely that in the company’s own words: “Our ability to grow and deliver our projects has been hampered by funding constraints”. The constraints have resulted in a severe decline in turnover, pre-tax losses and a lacklustre share price. The constraints are of a complex nature, however, and deserve some explanation.

Green & Smart started out as a company involved in waste water treatment in rubber plantations. Since May 2016, when the company floated on AIM (having first consolidated various subsidiaries and minority holdings into Green & Smart Holdings), its core activity has been capturing biogas from palm oil mill effluent (POME). It plans to become a major player in this field. Energy from POME is very big business in Malaysia just now and could grow exponentially. The company is reported to hold 33.3 per cent of the 112.5MW of Feed-in-Tariff approved capacity currently available in Malaysia. Its plants will be covered by the company’s 16- year feed in tariff (FiT) contract and sold to Malaysia’s national grids.

Green & Smart believe that biogas plants from palm oil mill effluent (POME) will proliferate in Malaysia

  Green & Smart have an embryonic build, own and operate (BOO) division based on POME, they also have invested in two other Malaysian green companies involved in waste management—Megagreen Energy (MGE), and Concord Green Energy (CGE) which specialise in engineering, procurement, construction and commissioning (EPCC) projects.

G & S thus has two business models. In the past, EPCC deals which design and build projects for other owners have dominated turnover. In June 2017 G & S had outstanding receivables of Malaysian ringgits RM76million (£14.5m) related to MGE and CGE.  So EPCC contracts are not to be sneezed at. But the monies are paid later and over time–in some cases over 16 years. This can mean a lumpy and uncertain earnings stream.

 As an alternative, G&S reckoned that if it developed its BOO projects, while there would be no immediate income until such projects are completed and generating cash flows, these cash flows would be considerable in the long term. A former house broker of G &S, SP Angel said the margins on these plants is high – biogas power generation plants at a mill are typically 2MW in size and cost RM14m (£2.6m) to build with construction and connection to the national grid taking just under 12 months.  The broker’s model was that a 2MW plant producing annual electricity sales of RM7.3m (£1.3m), which should generate a net profit of RM3.5m (£0.6m)—this is a 47 per cent margin. The broker says the payback period is just over 3 years.

Accordingly, G&S now has built two BOO schemes and has five more planned. The company’s first fully-owned plant, the 2MW Kahang biogas plant in Johore which was commissioned in early 2017 is generating power that is being sold to the national utility at the full tariff rate. The second fully-owned project, the Malprom biogas plant in Penang has yet to secure its commercial operation date (COD) that will allow it to sell its power at the full tariff rate.

 With the money from the EPCC contract of RM12.5m awarded to Megagreen for improving facilities at five biogas power plants already constructed by them slow to come in and with work on four CGE projects temporarily suspended, the 2017/2018  interim results do not make for cheerful reading. Revenue was RM1.8m (£344,168) against RM25.8m (£4.9m) in H1 2017. The loss before tax was RM5.7m (£1.1m) compared to a profit of RM3.8m (£726,577). Cash and cash equivalents at 31 March 2018 were RM 0.011m (just £2100) The company says that post period it raised RM17m from Serba Dinmark by way of a private placement and will use these funds to resume developing its projects. Meanwhile, the share price of the £14.68m market company was on a 52-week low of 4.25 pence last evening against a high of 8.62p.