Report to Shareholders for the Quarter Ended 30 June 2018
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The past quarter has seen a significant opportunity to merge Carnegie's subsidiary Energy Made Clean Pty Ltd (EMC) and ASX-listed Tag Pacific Limited (Tag) to create one of the region's largest, specialist Engineering, Procurement, Construction (EPC) and Build, Own, Operate (BOO) specialists in the rapidly growing off-grid and fringe-of-grid solar, battery and microgrid markets.
EMC's growth potential was demonstrated with turnover doubling in the second half of the 2018 financial year to approximately $10m versus the first half of $5m, however the business remains loss making. EMC revenues need to further increase significantly to move from loss making to profitability. EMC has the potential to achieve profitability through organic growth, however the timing is unsure and additional capital may be required.
The acquisition of EMC by Tag will deliver sufficient scale to bring forward profitability for the benefit of Carnegie shareholders who will continue to retain exposure via the proposed in-specie distribution of fully paid ordinary shares in Tag upon completion of the transaction.
Carnegie shareholders will receive approximately 32% of the combined EMC/Tag entity before a proposed $4 million capital raise to be undertaken by Tag. The new combined entity, to be renamed MPower, has pro forma 2018 combined revenue of approximately $50 million and starts the 2019 financial year with a committed order book already of some $20 million. We would anticipate that through delivery of scale and liquidity the Mpower transaction should unlock significant value for Carnegie and Tag shareholders going forward.
Carnegie shareholders will also retain their shares in Carnegie which will continue as a renewable energy company focusing on commercialising its CETO wave energy technology and investigate other related marine opportunities. Carnegie will continue to own the Garden Island Microgrid and 50% ownership of the Northam Solar Farm. The value of these assets can be used to support CETO commercialisation going forward.
Carnegie will shortly be sending the Notice of Meeting providing transaction information and timing for a meeting targeted for September 2018. In the meantime, EMC continues to deliver on business commitments and is working to convert the significant number of prospects in its sales pipeline.
During the quarter, Carnegie progressed the CETO 6 wave energy technology design, site development and engagement activities for the Albany Wave Energy Project through the acquisition and analysis of data related to both the site-specific conditions and the virtual modelling and simulation, allowing it to finalise the CETO unit design for Albany. We also continue to progress our portfolio of collaborative research and development projects; pursuing innovations with the potential to reduce the long term levelised cost of energy and establishing partnerships that will help accelerate the commercialisation of the technology.
Michael Ottaviano
Chief Executive Officer & Managing Director
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