CHIEF EXECUTIVE’S REVIEW
Group Strategy
The strategy of NTR plc continues to be focused on becoming “A Leading
International Developer and Operator in Renewable Energy and Sustainable
Waste Management”.
While general economic conditions have changed dramatically in the past 12 months, with unprecedented turmoil in global capital and financial markets, the macro factors which underpin our belief in the long term prospects for renewable energy remain as potent as ever; climate change, resource depletion and security of energy supply.
To these three macro factors can be added a fourth factor, albeit more short term in nature; economic recovery.
As the world’s major economies faced severe contraction over the past year, it has become clear that the development of the renewable energy industry is not only crucial to addressing these issues, but will also play a critical role in promoting economic recovery. It has become increasingly evident over recent months that global policy makers now recognise the renewable energy industry as being a critical catalyst for addressing not just energy needs but also as an engine for economic growth and recovery. This is most evident in the USA where the American Renewal and Recovery Act (“ARRA”), commonly referred to as the Stimulus Package, passed by Congress in February 2009, provides a series of significant Federal support mechanisms for renewable energy and recycling projects.
Notwithstanding these important positive macro factors however, the Group is not immune to the short term effects of current uncertainty in international markets.
Waste industry volumes represent a good barometer of general economic activity and the decline in such activity has had a direct impact on waste volumes in our Greenstar businesses, particularly in the Republic of Ireland. When combined with the steep and rapid decline in commodity prices in the fourth quarter of 2008, the impact on the financial performance of all of our Greenstar businesses in the second half of the year was severe. All of these businesses have responded rapidly and effectively to these challenges, through a combination of cost reduction programs and the repricing of service contracts. However, the effect of these responses will not be seen until the current financial year.
In our development businesses, the contraction in credit markets has created an unprecedented degree of uncertainty as to the availability and cost of credit for major capital projects. While this issue was of less immediate impact for our businesses as we did not have substantial project build planned for 2009, it does nevertheless create challenges in accessing the capital necessary to build out large scale projects in the medium term. However, we are confident that the impact of the US Government Stimulus Package, together with the quality of our development projects, will enable us to progress with the commencement of the build out of our wind development pipeline this year and facilitate the build out of large scale solar projects from the latter half of 2010 onwards.
Organisation
While the pace and scale of the change undertaken by the Group over the
past two years is evident from the milestones which we have achieved,
what is not immediately evident is the organisational strength and depth
required to plan and implement such change.
Throughout this period of rapid transition, we have strengthened our business leadership and organisational capability both at Group and across our multiple business sectors and geographies.
Our work on organisational and leadership development across the Group over the past year has provided us with deep pools of leadership talent at Group level and in all of our Group businesses. Our ability to attract and retain such talent is further evidence of the sound strategic positioning of our businesses.
The business review section of this report provides further detail on the development of our organisation over the past year.
Financing
The Group’s policy with respect to financing is to ensure that the Group
and each of its business units have an appropriate mix of equity and
debt financing, consistent with the maintenance of a robust capital structure,
and have access to sufficient liquidity to meet short to medium term
financial commitments and to support our business growth and development
objectives.
All of our business units continue to maintain their own independent capital structures, with equity provided by NTR plc and outside equity investors and debt raised at business unit and project level.
At 31 March 2009, NTR had cash resources held at Group of €171.6 million and net borrowings of €70.2 million, with all borrowings held in subsidiary companies. At year end, the Group had liquid cash resources of €232 million available to support further investment in our businesses.
Whilst NTR enjoys a strong balance sheet, we are cognisant that the growth and development opportunities available to our businesses are significant. However, NTR is confident that new sources of third party equity capital will be secured, enabling those businesses to reach further key milestones over the next two to three years.
The Group has already begun the process of evaluating all of our options for raising the required equity funding for our businesses, in particular our Solar and Wind businesses. While no firm decisions have yet been taken as to any particular funding route, we are confident that we will be able to secure the required equity funding to enable our businesses to fulfil their ambitious growth and development objectives.
Outlook
Over the past year, the Group has successfully secured and developed
strong platform positions in the key Renewable Energy sectors of Solar,
Wind and Ethanol while simultaneously responding decisively to the
challenges posed to our Recycling businesses by a rapidly deteriorating
macro-economic environment.
As a result, the Group is now recognised as a leader in the Renewable Energy and Sustainable Waste Management sectors in the North American market. While near term economic uncertainty clearly poses challenges, our well capitalised balance sheet will enable us to withstand strong economic headwinds, while the fundamental prospects for our sectors continue to improve.
With a clear strategy, strong platform positions and proven leadership capability, the Group is poised for substantial further growth and development in the coming years.
Jim Barry
Chief Executive
16 July 2009