Shareholder Newsletter December Quarter

Dear Shareholder,

We are pleased to provide you with an update on the business activities and progress of Australian Renewable Fuels Limited (ARfuels) for the quarter ending 31 December 2012. The quarter included the 12 month anniversary of the acquisition of Biodiesel Producers Limited and the continued improvement in the performance of the ARfuels business, including a first ever profit result of $1.4m for the half year (subject to audit clearance).

Highlights

  • The half year financial result for 31 December 2012 will be a Net Profit After Tax of approximately $1.4m (subject to audit clearance).
  • For the quarter ended 31 December 2012 ARfuels generated net operating cash inflows of $431k, as reported in the Appendix 4C Cash Flow Report. This is attributable to the continued improved trading results, notwithstanding a below average sales result for December due to the industry wide diesel shortage in Victoria and NSW during that month.
  • As advised in yesterday’s ASX releases, ARfuels will undertake a capital raising of $12.3m with a placement of $4.27m fully subscribed and a fully underwritten rights issue for $8.01m. This completes the recapitalisation of the business, provides working capital as the Picton and Largs Bay plants come back on line and enables the senior debt facility to be repaid.
  • The rebuild program at the Largs Bay plant was completed on time and under budget and the plant is back on-line producing biodiesel. The arrival of an improved loading gantry will facilitate in-line blending for customers directly from the Largs Bay gantry. This will be installed in February 2013.
  • We are in the process of finalising the business nterruption/loss of profits claim which is expected to be completed during February 2013.
  • ARfuels continue to develop reliable and sustainable sources of waste vegetable oil feedstocks. During the quarter we received and processed a number of trial shipments. This developing supply chain, whilst in the early stages, is very promising and we have to date processed over 200 tonnes of these feedstocks through the Barnawartha plant with a high quality product that meets our biodiesel standards and no impact on plant performance;
  • During the December quarter we completed a further export shipment to the USA, bringing total exports to 12 million litres over the past 12 months. Negotiations are currently in progress for the next export shipments with the Largs Bay plant now back on line.
  • ARfuels growth trajectory was recognised by Deloitte in awarding ARfuels second place in its annual ‘Deloitte Technology Fast 50, Australia 2012”, a ranking of Australia’s fastest growing and uniquely positioned companies in the technology arena.
  • During December ARfuels was awarded preferred supplier status to Australian Councils via a tender process. This recognises the quality of the ARfuels business and our product, and will allow increased exposure and sales to the important Local Government sector.

Sales

Sales volumes during the month of December were negatively impacted by the mineral diesel shortage in Victoria and NSW. Demand for biodiesel continued to grow during the quarter with the major oil companies biodiesel facilities in Sydney and Melbourne providing a strong sales base.

We are in the process of installing biodiesel storage and blending facilities in Perth and this will provide the necessary infrastructure for the long term blending of biodiesel with the major diesel suppliers in WA.

The Largs Bay plant came back on line in November and a blending facility will be installed in February to provide B5 and B20 blending options at that plant.

Negotiations are in progress for a series of export shipments out of Adelaide and Perth. On completion these orders will provide a material step up in the sales and production levels of the Largs Bay and Picton plants.

Biodiesel Sales Litres June 2012

Production

The plants are running below nameplate capacity and this is a function of sales. We have employed Anthony Guy as Business Development Manager, to focus on sales and business growth in South Australia andWestern Australia. Production volumes are expected to increase over the next six months and as mentioned earlier demand from export markets are also expected to provide a base line level of sales out of Picton and Largs Bay during 2013.
Plant production June 2012

Feedstock

Delivered feedstock prices throughout the quarter averaged A$750 to A$800 per tonne. Levels in the current quarter are approximately $50 per tonne lower and we are not seeing significant upwardpressure on tallow and UCO pricing in the first quarter of 2013. We continue to investigate all feedstock options for used and waste vegetable oils and low grade tallows.

The successful processing of waste vegetable oil feedstocks at the Barnawartha plant during the quarter has proven that these feedstocks are a viable addition to our business mix and we continue to develop this side of the operations.

Financial Position

An update of the company’s cash position was provided in the Appendix 4C Cash Flow Report for the December quarter, which reported a positive net operating cash flow. The total cash position of the quarter was an outflow of $2.1m driven by the final payment for the acquisition of Biodiesel Producers Limited of $2.4m.

The 31 December half yearly accounts are currently being audited and they will be released around 21 February 2013. As stated the preliminary unaudited result is a Net Profit After Tax of $1.4m. This does not include any result for the Business Interruption insurance claim arising from the fire at the Largs Bay plant. The outcome of that claim is expected to be confirmed during February 2013.

Proposed Merger with Wentworth Holdings Limited (WWM)

The ASX and Shareholders releases on 7 February 2013 announced the takeover of WWM will not proceed and we will complete a capital raising of $12.3m via a placement and rights issue. We are delighted that this raising has been supported by our largest shareholders and also a number of new corporate and institutional investors. This raising recapitalises the business and provides the necessary funding for working capital as the business continues to grow and for repayment of the senior debt facility to Suncorp Metway Limited.

If there are any queries in relation to the business of the company or the matters outlined above, please do not hesitate to contact Andrew White on 03 9981 0010 or [email protected] If you would like to receive the Quarterly Newsletter via email please forward your name and email address to .

Yours Sincerely,
andrew-white-sgn
ANDREW WHITE
Managing Director and Chief Executive Officer
8 February 2013

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