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20|07|2011 - 10h49Biodiesel maker Renewable Energy Group files for $100M IPO

Biodiesel maker Renewable Energy Group filed to raise up to $100 million in an IPO on the Nasdaq under the symbol REGI

By Reuters
Ucilia Wang

This year has ushered in a wave of biofuel IPOs, from Solazyme, to Gevo to Kior. The latest is biodiesel maker Renewable Energy Group, which on Monday filed to raise up to $100 million in an IPO on the Nasdaq under the symbol REGI.

In contrast to the other next-gen biofuel startups that have gone public this year, Iowa-based Renewable Energy Group is an older firm formed out of a consolidation of several firms, and bills itself as the largest biodiesel producer in the country. Renewable Energy sold close to 68 million gallons of biodiesel, or 22 percent of the U.S. overall production, in 2010, according to the company’s filing. Five million of the 68 million gallons came from plants operated by other companies.

Renewable Energy runs six biodiesel plants with a total capacity of 212 million gallons per year and owns five of them. It wants to use proceeds from the IPO primarily to buy a refinery in Illinois that it currently leases. The company also wants to expand its reach into making green chemicals and other types of feedstocks and biofuels, including algae oil.

Renewable Energy uses mostly animal fat, used cooking oil and “inedible corn oil” to produce biodiesel. These feedstocks are cheaper than using virgin vegetable oils such as soybean oil, the company said. In fact, the company shifted away from using soybean oil in 2009 because soybean oil had become a pricy feedstock and was eating into the company’s profit.

The company has shown growing revenues, generating $216.46 million in 2010, $131.5 million in 2009 and $85.45 million in 2008. Strong demand boosted the company’s sales for the first three months of this year to $100.1 million, up from $33 million in the same period a year ago. The company’s biggest customer is Pilot Travel Centers, which sells diesel and biodiesel to truck drivers, and which accounted for 29 percent of Renewable Energy’s revenues in 2010 and 24 percent in 2009.

At the same time, Renewable Energy Group isn’t profitable on a yearly basis, but has been on a quarterly basis. The company posted losses of $21.59 million in 2010, $68.86 million in 2009 and $15.88 million in 2008. But for the first quarter of this year, the company posted a net income of $3.74 million, up 21 percent from $3.08 million in last year’s first quarter.

The company has been around since 1996 and mostly operated refineries owned by others until recent years. It then embarked on a series of acquisitions and mergers for refineries. In 2010 alone, it merged with Blackhawk Biofuels and bought some or all of the assets of Central Iowa Energy, Tellurian Biodiesel, American BDF, and Clovis Biodiesel. And this year, Renewable Energy bought a Minnesota plant owned by SoyMor Biodiesel.

The biodiesel industry has relied mostly on state and federal tax incentives to compete. The industry experienced a downturn starting in 2008 partly because of taxes on U.S. biodiesel being exported to the European Union, the crashing economy, and high soybean prices. The implementation of the Renewable Fuel Standard (RFS) 2 by the U.S. Environmental Protection Agency, a federal renewable energy mandate put in place last year, gave the biodiesel industry a big boost in demand. Through RFS, the government is gradually increasing the amount of renewable fuels, from cellulosic ethanol or biodiesel, that the country needs to use every year until 2022.

Image courtesy of Renewable Energy Group.

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