'Kedco's finances were in dire straits until FBD arrived on the scene'

ENTREPRENEURS
Kedco Aims In
A New Direction
Cork company Kedco has racked up big losses with a Latvian sawmill
and sell<strong>in</strong>g ‘green’ boilers. Now the company wants to tap <strong>in</strong>vestors with
a fresh idea, writes BRIAN SKELLY
What do you get when you mix
two dairy farmers, a bus<strong>in</strong>essman
and an agricultural
scientist The answer is Kedco,
the first Irish green energy company to
list on the Alternative Investment Market
<strong>in</strong> London. The October list<strong>in</strong>g was the
next stag<strong>in</strong>g post on a four-year journey
that began when Kedco was set up
<strong>in</strong> January 2005. At the helm is
chief executive Donal Buckley, 33, a
former manager at Cork-based natural
resources group SWS. The other three
founders of the company are dairy
barons William K<strong>in</strong>gston and Diarmuid
Lynch, and bus<strong>in</strong>essman Eddie Barrett.
The AIM list<strong>in</strong>g didn’t raise any cash
from new <strong>in</strong>vestors, though the
<strong>in</strong>tention is to tap the market <strong>in</strong> 2009.
Kedco’s plan is to enter <strong>in</strong>to jo<strong>in</strong>t
ventures with waste and agricultural
operators to build small plants that
generate electricity from waste. At the
moment though, all that is blue sky.
Kedco’s current bus<strong>in</strong>ess is much more
prosaic and has racked up big losses for
the founders and their backers.
Kedco’s AIM admission document
shows turnover of €9m <strong>in</strong> the 14
months to June 2008, an operat<strong>in</strong>g loss
of €4.6m and a net loss of €5.4m.
Accumulated losses stood at €8.1m last
June, and the company’s <strong>f<strong>in</strong>ances</strong> <strong>were</strong>
<strong>in</strong> <strong>dire</strong> <strong>straits</strong> <strong>until</strong> <strong>FBD</strong> <strong>arrived</strong> on the
scene a few months ago, with a €7m
<strong>in</strong>vestment for a 25% stake <strong>in</strong> the firm.
Kedco’s ma<strong>in</strong> bus<strong>in</strong>ess is Vudlande, a
sawmill operation <strong>in</strong> Latvia that
produces wood and biomass products.
Kedco owns 80% of Vudlande and the
venture accounts for two-thirds of
Kedco’s turnover. Kedco Energy sells
biomass boilers and CHP plants to the
commercial and domestic markets <strong>in</strong> the
UK and Ireland, and has sold 500 units
s<strong>in</strong>ce 2006. Annual turnover from this
activity is around €2m. Another unit,
Granig Trad<strong>in</strong>g, with annual turnover of
€1m, imports and distributes wood
pellets <strong>in</strong> Ireland, presumably sourced
from the sister company <strong>in</strong> Latvia.
Kedco subsidiary Castle Home
Supplies, a builders provider, has been
<strong>in</strong> the process of be<strong>in</strong>g wound down
s<strong>in</strong>ce July 2007, with the <strong>dire</strong>ctors
anticipat<strong>in</strong>g that the bus<strong>in</strong>ess will be
term<strong>in</strong>ated by the end of 2008. Kedco’s
balance sheet places a value of €1.6m on
Castle Home’s land and build<strong>in</strong>gs,
though the firm has associated liabilities
of €1.7m.
In the admission document, details on
Vudlande, Granig and Castle Homes are
bundled together, reveal<strong>in</strong>g a trad<strong>in</strong>g
loss of €1.3m <strong>in</strong> the f<strong>in</strong>ancial period to
June 2008. Kedco Energy’s trad<strong>in</strong>g loss
for the period was €2m, up from a loss
of €600,000 the previous year.
Altogether then, not a very pretty
picture, and the group’s net debt <strong>in</strong> June
2008 was €7.6m. In addition to bank
loans, Kedco has been funded by equity
and loans from <strong>in</strong>vestors. From the
admission document, it appears that
<strong>in</strong>vestors, exclud<strong>in</strong>g <strong>FBD</strong>, are <strong>in</strong>to Kedco
for nearly €10m. On the face of it, those
brave <strong>in</strong>vestors can live <strong>in</strong> hope, as <strong>FBD</strong>’s
<strong>in</strong>vestment valued Kedco at €28m. But
whether they get out of jail will depend on
AIM <strong>in</strong>vestors ris<strong>in</strong>g to the bait when the
company goes to the market.
‘Kedco’s <strong>f<strong>in</strong>ances</strong>
<strong>were</strong> <strong>in</strong> <strong>dire</strong> <strong>straits</strong>
<strong>until</strong> <strong>FBD</strong> <strong>arrived</strong>
on the scene’
The pitch to new <strong>in</strong>vestors is based on
a new activity for Kedco, which at the
moment does not generate any revenues
for the firm. Kedco Power’s aim is to
facilitate electrical power generation
from susta<strong>in</strong>able fuel sources. Kedco’s
<strong>in</strong>tention is to be a platform provider,
sourc<strong>in</strong>g technologies such as gasification
and anaerobic digestion power plants for
sale to medium-sized waste operators,
local authorities, food companies and
agricultural operators. The bus<strong>in</strong>ess
36 Bus<strong>in</strong>ess Plus January 2009

Kedco manag<strong>in</strong>g <strong>dire</strong>ctor Donal Buckley (left) and f<strong>in</strong>ance <strong>dire</strong>ctor Gerry Madden
model calls for Kedco establish<strong>in</strong>g
partnerships with these customers, to
own and operate electrical generation
plants, with the aim of benefit<strong>in</strong>g from
recurr<strong>in</strong>g revenue streams generated by
the sale of the electricity.
Accord<strong>in</strong>g to Kedco, the company has
identified 25 specific opportunities for
Kedco Power, of which seven have
signed, non-b<strong>in</strong>d<strong>in</strong>g letters of <strong>in</strong>tent.
However the firm cautions: “Whether
the identified projects become operational
depends upon a number of factors,
<strong>in</strong>clud<strong>in</strong>g enter<strong>in</strong>g <strong>in</strong>to commercially
acceptable agreements with jo<strong>in</strong>t
venture partners, secur<strong>in</strong>g satisfactory
<strong>in</strong>vestment and f<strong>in</strong>anc<strong>in</strong>g terms and
receiv<strong>in</strong>g the appropriate plann<strong>in</strong>g
consents.”
The bus<strong>in</strong>ess model is challeng<strong>in</strong>g.
For <strong>in</strong>stance, Kedco Power says it is
currently <strong>in</strong> discussions with a waste
operator <strong>in</strong> London to develop a 4MW
gasification plant with the capability of
process<strong>in</strong>g 18,000 tonnes of wood waste
per annum. For that project to get off
the ground, Kedco has to source the
appropriate technology, arrange the
necessary debt f<strong>in</strong>ance, manage
construction of the plant, provide its
share of the equity f<strong>in</strong>ance and strike a
supply deal with a power company.
Multiply that by 25 times and there’s a
lot of legwork and legal agreements
<strong>in</strong>volved. So much rests on the
cont<strong>in</strong>ued on page 38
Bus<strong>in</strong>ess Plus January 2009
37

ENTREPRENEURS
shoulders of Donal Buckley, a native of
Castletownshend. He po<strong>in</strong>ts out that
regulatory requirements to reduce
landfill waste and boost green energy
will <strong>in</strong>crease demand for the type of
small power plants be<strong>in</strong>g promoted by
Kedco Power.
Buckley’s ma<strong>in</strong> sales focus is on
the UK, where there are better
<strong>in</strong>centives than <strong>in</strong> Ireland to produce
electricity from waste. Buckley believes
Kedco enjoys “early mover advantage”
<strong>in</strong> the UK. While there is no shortage of
technology providers try<strong>in</strong>g to sell
green plants to waste operators,
companies such as Kedco that want to
partner with them and operate on a
jo<strong>in</strong>t venture basis are th<strong>in</strong> on the
ground, he said.
Such is Kedco’s vision. But br<strong>in</strong>g<strong>in</strong>g it
to life will require capital fund<strong>in</strong>g. Each
plant costs <strong>in</strong> the region of €8m to
build, and <strong>in</strong> a jo<strong>in</strong>t venture Kedco
would have to source debt f<strong>in</strong>ance and
pony up some cash itself. That’s money
that Kedco doesn’t have, which is where
the AIM list<strong>in</strong>g comes <strong>in</strong>.
Accord<strong>in</strong>g to Kealan Doyle of Lewis
Charles, the stockbroker which
<strong>in</strong>troduced Kedco to AIM, there is
considerable <strong>in</strong>vestor appetite for
renewable energy projects given the
long-term momentum beh<strong>in</strong>d the
sector. He said: “With Kedco, you’re
talk<strong>in</strong>g about a bus<strong>in</strong>ess that can grow
<strong>in</strong>credibly quickly <strong>in</strong> the next few years.
So I do th<strong>in</strong>k there will be money
available for someth<strong>in</strong>g like that,
barr<strong>in</strong>g some extreme event,” he said.
Ian Hunter, equity analyst <strong>in</strong>
renewable energy at Goodbody
Stockbrokers, agreed that there are
specialist <strong>in</strong>vestors who take a longterm
view of the renewable energy
sector and are will<strong>in</strong>g to <strong>in</strong>vest <strong>in</strong> green
energy projects. Accord<strong>in</strong>g to Hunter:
“You’re look<strong>in</strong>g at long lead-<strong>in</strong> times
before revenues start to accrue.
Ord<strong>in</strong>ary <strong>in</strong>vestors wouldn’t be <strong>in</strong>cl<strong>in</strong>ed
to <strong>in</strong>vest <strong>in</strong> that type of company,
especially at the moment. But there are
specialist funds that would take the view
that alternative energy is on a growth
curve.”
Buckley, who has an 8% stake <strong>in</strong>
Kedco and is on a salary of €200,000,
Kedco Pr<strong>in</strong>cipals
● William K<strong>in</strong>gston, 37, nonexecutive
chairman. One of the four
orig<strong>in</strong>al founders. His Cork dairy
farm is one of the largest <strong>in</strong> Ireland.
Owns 8% of Kedco.
● Diarmuid Lynch, 43, non-executive
<strong>dire</strong>ctor. Co-founder who also has a
big dairy farm <strong>in</strong> Cork. Owns 10%.
● Donal Buckley, 33, chief executive.
He was also <strong>in</strong> at the start <strong>in</strong> March
2005. Buckley was a divisional
manager with SWS Farm Services, a
w<strong>in</strong>d energy firm. Graduated from
UCD 1997 with a degree <strong>in</strong>
Agricultural Science. Owns 8%.
● Gerry Madden, 49, f<strong>in</strong>ance
<strong>dire</strong>ctor. Chartered accountant who
jo<strong>in</strong>ed Kedco <strong>in</strong> May 2007.
● Edward Barrett, 41, non-executive
<strong>dire</strong>ctor. Co-founder of Kedco. His
firm International Livestock Genetics
distributes bov<strong>in</strong>e genetics and
Barrett is also a <strong>dire</strong>ctor of Plat<strong>in</strong>um
Asset Management. Owns 6%.
● Donal O’Sullivan, 64, nonexecutive
<strong>dire</strong>ctor. Jo<strong>in</strong>ed the board
<strong>in</strong> August 2007. He was the
chairman of Esso Ireland <strong>until</strong> 2001
and then manag<strong>in</strong>g <strong>dire</strong>ctor of
Hoyer.
● Alf Smiddy, 46, non-executive
<strong>dire</strong>ctor. Jo<strong>in</strong>ed the board <strong>in</strong> May
2007. Smiddy was <strong>in</strong> charge of Cork
brewer Beamish & Crawford for 20
years <strong>until</strong> its recent takeover by
He<strong>in</strong>eken.
observed: “People always ask me if
green is go<strong>in</strong>g to be like the dot com
bubble - is it go<strong>in</strong>g to burst The
difference is that with green there is
someth<strong>in</strong>g very tangible, renewable
energy replac<strong>in</strong>g oil imports. This is
someth<strong>in</strong>g that even the average punter
can understand.”
The green energy sector is young,
and so is Buckley, but he’s not fazed by
his relative youth. “It’s someth<strong>in</strong>g I
don’t th<strong>in</strong>k about it too much to be
honest,” he said. “The only way to ga<strong>in</strong>
credibility is to deliver. The one th<strong>in</strong>g
you can’t be when you’re young is
cocky, because if you’re young and
arrogant you’ll get pulled to the ground
very fast.”
Kedco’s other executive <strong>dire</strong>ctor is
longer <strong>in</strong> the tooth. F<strong>in</strong>ance <strong>dire</strong>ctor
Gerry Madden, 49, jo<strong>in</strong>ed Kedco last
year on a salary of €250,000
per annum. Madden previously
operated his own consultancy practice
advis<strong>in</strong>g companies on mergers and
acquisitions, and he is a non-executive
<strong>dire</strong>ctor of Ecom Interaction Services, a
‘There’s a lot of
legwork and legal
agreement
<strong>in</strong>volved’
subsidiary of Newcourt plc.
Kedco’s admission price on AIM was
17.5 cents per share, giv<strong>in</strong>g the
company a notional value of €35m. The
list<strong>in</strong>g process began last June and
Kedco put together a heavy-weight
professional services team to make the
list<strong>in</strong>g happen: Arthur Cox <strong>in</strong> Dubl<strong>in</strong> to
handle the legal side, Deloitte <strong>in</strong> Cork
for the full f<strong>in</strong>ancial audit and then
Deloitte Corporate F<strong>in</strong>ance <strong>in</strong> London
as its nom<strong>in</strong>ated adviser.
Despite the punish<strong>in</strong>g due diligence,
Buckley feels that Kedco has benefited
greatly from the process. He said:
“List<strong>in</strong>g is very good for a bus<strong>in</strong>ess. You
have to go through everyth<strong>in</strong>g <strong>in</strong> great
detail. You’re asked the same th<strong>in</strong>g five
different times by five different people.
I’m glad it’s f<strong>in</strong>ished but it was well
worth do<strong>in</strong>g.” However all that hard
work, and the large expense <strong>in</strong>volved,
will only be worthwhile if Buckley,
Madden and chairman Bill K<strong>in</strong>gston can
persuade <strong>in</strong>stitutions that Kedco has the
ability to deliver on its ambitious
bus<strong>in</strong>ess model.
38 Bus<strong>in</strong>ess Plus January 2009