Shareholder Newsletter June 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 ended 30 June 2013. The quarter and year included a number of milestone achievements for the business.

Highlights

  • $2.2 million net profit expected for 2013
  • Export program well underway
  • Largs Bay rebuild now complete
  • Business recapitalised
  • 100:1 share consolidation proposed

$2.2m net profit expected for 2013

ARfuels expects net profit for the year ending 30 June 2013 to be approximately $2.2 million, subject to audit clearance.

This represents a turnaround of more than $9 million on the previous year’s result and provides a solid platform for continued earnings growth.

The $2.2 million result will be achieved after taking into account approximately $1.6 million of one-off expenses unique to the 2013 year. This result also includes the accounting gain on the derivative (profit) of $1.1 million reported in the 31 December 2012 half-year result.

One-off expenses included: capital raising costs ($500k), a foreign exchange reserve relating to previous years written off ($500k), some historical bad debt write-offs, the full impact of the fire at Largs Bay including the carrying costs of staff and other overheads, and additional training and maintenance costs for the Picton and Largs Bay plants as we brought those plants back on line to meet export orders.

As reported in the Appendix 4C Cash Flow Report for the quarter ended 30 June 2013, ARfuels incurred net operating cash outflows of $6.3 million for the quarter. This was mainly due to the cost of producing 5,000 tonnes of finished goods inventory for the export sale shipped in June. The cost of production was partly offset by the $3.9 million business interruption insurance proceeds received in the first week of July.

Export program now well underway

The first 5,000 tonne shipment of a two cargo biodiesel export sale to the USA was loaded on 11 June at Largs Bay and 17 June at Kwinana. The shipment is due to arrive in the US Gulf during the first week of August 2013. The second shipment of about 4,000 tonnes is in production with an estimated shipping date of late August 2013. The company expects to announce further export sales contracts in the near future.

Business now well capitalised

The establishment of a $6.1 million working capital facility with a large global bank and the successful settlement of the Largs Bay fire business interruption insurance claim for $3.9 million have ensured the business is now appropriately capitalised.

The completion of these activities, along with the capital raising of $12.3 million during the March quarter, have removed short term financing constraints on the business and provided the working capital to support the sales growth of biodiesel in the domestic and overseas markets and continue our feedstock development program.

Largs Bay rebuild now complete

The rebuild of the Largs Bay plant funded by the material damages insurance claim has reached practical completion. Both the Largs Bay and Picton plants are back on line for the planned series of export shipments to the USA.

100:1 Share Consolidation

As advised to the ASX on 26 July 2013, a General Meeting of Shareholders has been called to consider a proposal to consolidate the shares of ARfuels on a 100:1 basis. We will also implement a program to remove unmarketable parcels from the register over the coming months.

Whilst these activities do not drive any direct material profit improvement, they will result in some reductions in costs and also a substantial reduction in the numbers of shares on issue, as well as a share price more attractive to a broader range of investors.

Sales and production

The sales volumes during the quarter were affected by the production of stock for export sale. Domestic sales continued with our existing customer base. Increasing the domestic sales base requires the installation of biodiesel storage and blending infrastructure at the mainstream diesel terminals in SA and WA. We are working towards establishing these facilities. This has not progressed at the rate we might have hoped, however with the export sales base firmly established, we have options with a number of US and European customers for our biodiesel.

Production levels will increase with firm sales orders in hand. Both Picton and Largs Bay are working at increasing production volumes with the production demand driven directly by sales.

Once the export shipment load was processed, preventative maintenance works commenced at Largs Bay. This is part of an ongoing maintenance program for all ARfuels plants. An unplanned maintenance shutdown in Barnawartha during June drove a lower than planned result at that plant.

ARfuels — Biodiesel Sales Litres ‘000

ARfuels — Production Litres ‘000

Feedstock

Delivered feedstock prices throughout the quarter increased slightly with strong activity in the feedstock markets by offshore buyers, particularly via Singapore and China. The increase in feedstock prices is currently being offset by increases in our selling price of biodiesel.

ARfuels continues to develop alternative options for the sustainable supply of low grade and lower cost feedstocks, including used and waste vegetable oils

Financial position

The expected unaudited profit result of $2.2 million has been outlined above and will be confirmed and reported in detail in the Audited Financial Statements due for release around 30 August 2013.

An update of the company’s cash position was provided in the Appendix 4C: Consolidated Statement of Cash Flows for the June 2013 Quarter, lodged on 31 July 2013.

The June 2013 Quarter incurred net cash outflows of $6.4 million, including net operating cash outflows of $6.3 million. The net cash balance at 30 June 2013 was an overdrawn position of $2.2 million.

Subsequent to year-end, the final Business Interruption insurance claim proceeds of $3.9 million were received.

Other key factors to note for the Quarter are:

  • Sales receipts for the Quarter were $0.6 million higher than the March 2013 Quarter, driven by domestic sales activity. The sales result does not include the $7 million export sale that was shipped in late June 2013, with the revenue recognised on delivery and proceeds due in the first half of August 2013.
  • Net operating cash outflows included over $6 million in costs required to fulfil ARfuels’ first export order of the 2013 calendar year. Payments included freight, raw material costs and additional plant costs associated with the restart of the Largs Bay and Picton plants.
  • Also included in the payments for the Quarter ended 30 June 2013 was over $1 million in raw material and processing costs related to the biodiesel inventory build for the next export shipment. This shipment is due for departure in late August 2013.

General Meeting

As noted above, a General Meeting of Shareholders has been called for 26 August 2013 to consider a proposal to consolidate the shares of ARfuels on a 100:1 basis. We will also implement a program to remove unmarketable parcels from the register over the coming months.


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 [email protected]

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

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