Preliminary Results

RNS Number : 4972P

Stanelco PLC

26 March 2009

 



26 March 2009

Stanelco plc ('Stanelco', 'the Company' or 'the Group')

Preliminary Results for the year ended 31 December 2008

Financial Highlights

• Group revenue up 84% to £14.8m (2007: £8.1m)
• Loss from operations reduced to £2.8m (2007: loss £5.6m)
• Closing Group cash position £6.4m (2007: £8.1m)
• Loss per share reduced to 0.010p (2007: Loss per share 0.169p)

Business Highlights

• Significant growth in bioplastics sales
• Significant progress made in developing new products in UK R&D centre
• Senior management team strengthened
• Commercial activities widened into Europe and North America
• Continue to have a disciplined and careful approach to cash control 

John Standen, Non-Executive Chairman said:

'We continued to achieve strong growth in the business during the year from our operations. We have a good platform in place, a strong management team capable of continuing to achieve growth for the business, and although the economic environment is challenging, the product areas we operate in are proving robust.

'Our emphasis for 2009 will remain on continuing to focus on cash control and working towards generating profitability from our operations.

'Whilst pushing forward with organic growth, the Board continues to consider acquisition opportunities which would allow it to take significant steps forward in scale.'  

- Ends -

For further information please contact:

Paul Mines, Chief Executive, Stanelco plc Sue Bygrave, Group Finance Director, Stanelco plc	Tel: [phone]
Jonathon Brill/Caroline Stewart,  Financial Dynamics	Tel: [phone]

  Chairman's Statement

This has been another successful year for Stanelco with continued strong growth in revenue and gross profit and significant progress against the Group's strategy of exploiting its intellectual property in the Bioplastics and Radio Frequency (RF) markets. In both divisions, experienced teams have been put in place to develop a focused portfolio of new products, a number of which have already been sold or are undergoing extended customer trials. 

Results

Group revenues increased by £6.7m to £14.8m in the year ended 31 December 2008, an increase of 84% compared with the previous year.  

A significant proportion of this growth (£5.0m) was achieved by the Group's Biotec subsidiary whilst sales of bioplastics made directly by Stanelco also increased by £1.4m, up 385% compared with the previous year. The BioPlastics division also benefitted from a £0.3m receipt in settlement of a claim for royalties for an item of intellectual property. In RF, sales revenues were maintained whilst work was completed on a number of new product designs.

Gross profit for the year increased from £1.9m to £2.8m, however, the gross margin was impacted by higher raw material costs in the BioPlastics division and reduced to 19% (2007: 23%). Some of these increased costs have now been passed on to customers.

The loss from operations for the year reduced to £2.8m (2007: £5.6m) despite increased investment in the development and commercialisation of the Group's products. The loss before taxation was £0.5m (2007: £5.0m), delivering a loss per share of 0.010 pence (2007: 0.169 pence).

Our cash position at the year end was £6.4m, with close management of working capital during the year limiting the net cash outflow from operating activities to just £1.4m (2007: £5.1m).

Strategy

The Group's strategy continues to be to seek ways to profitably develop and exploit the intellectual property in its BioPlastics and RF divisions.

We believe that the most commercially rewarding area for shareholders is BioPlastics, therefore that is where the majority of our strategic focus is being placed. The recession in the wider markets generally does not seem to be affecting the growth prospects for this division and that is very encouraging, although there may be some loss of peripheral business. We see substantial growth potential ahead in the short and medium term and our challenge is to capture as much of it as possible.  

The BioPlastics division is focussing on working closely with existing and potential customers to tailor the functionality of Stanelco's products to the customers' specific requirements ready to move on to higher volume production. In setting up a UK development facility working closely with a knowledgeable business development team we have already had significant success, with a number of customer trials leading on to production orders.

Our biodegradeable products are manufactured in Germany by Biotec, our joint venture (JV) with SPhere SA ('SPhere'). SPhere is Biotec's largest customer and part of our strategy is to increase the level of sales made directly by Stanelco. Stanelco has a 'golden share' in the JV which allows us to include 100% of its results in the Group's financial statements. This golden share expires on 31 December 2009. Thereafter, it is expected that the Group will consolidate only 50% (its share) of the JV into its results.

The RF Division is already established as the pre-eminent supplier of RF furnaces to the optical fibre market and here the strategy is to widen the product offering by developing a number of complementary products that can be sold alongside the furnaces or independently. New products developed during the year include a new generation of RF generators, a newly designed induction heater and a portable RF welder.

Board and employees

We are delighted to welcome Sue Bygrave to the Board as Group Finance Director. Sue has a proven track record in delivering organic and acquisitive growth in small to medium sized listed businesses and this will be invaluable as the Group moves into its next phase of growth.  Clive Warner stepped down from this position on 1 January 2009 - the Board thanks him for his considerable contribution and wishes him all the best for the future.

A number of other key individuals have joined the senior management team during the year, bringing into the Group a wealth of experience in the bioplastics and RF markets. Our success this year is very much down to them and the unerring support of our other employees. I would like to thank them all for their past and on-going efforts for the Group and believe we have strong teams working at all levels across the business to continue to achieve growth.

Outlook

This year we have delivered strong top line growth and made significant progress with product development. The business has a good platform for growth with its two divisions and a strong, experienced team. Although the economic environment surrounding us has changed, we continue to work closely with a number of customers with the potential to deliver further substantial increases in revenue, while considering acquisition opportunities that would allow us to significantly scale the business and improve shareholder value.

John Standen

Chairman

   Chief Executives' statement

Performance

I am pleased to report another year of improving performance and considerable progress against our new strategy of achieving commercialisation of our products. Having generated initial momentum in sales growth, we are now seeking to build on this while also improving margins in the business.

Looking ahead we are seeking to accelerate sales growth with both existing and new customers whilst broadening our product portfolio and geographic location of our sales.

Operational Review

Stanelco BioPlastics

The BioPlastics business has continued to make progress with sales up from £7.0m to £13.7m. We constrained the loss to £0.8m - this was better than we anticipated. Further progress was restricted by raw material increases mid-year and the requirement for continued investment in further technology development.

Stanelco's direct sales of bioplastics increased from £0.4m in 2007 to £1.8m in 2008 as a new commercial team began to build the customer relationships and trust that are essential for commercialising this technology. 

The end-uses in which Stanelco's bioplastics are now found (or are being trialled for) increased considerably in the year. Our materials can now be found in flexible films, horticultural products, bottles and tubes, fibres, capsules and injection-moulded items to name just a few.

Markets

In 2008 bioplastic demand in Europe increased by over 20% from 2007, in line with consensus forecasts of market development over the next 5 years.

The growth last year was driven by two significant factors:

1. Increasing public concern and legislation with regard to plastic waste disposal and the

   toughening European laws on waste segregation (increasing the use of municipal composting

   and anaerobic digestion).

2. Brand owners adopting 'bio-credentials' and functionality to differentiate their product ranges.

Further, it is becoming clear that as concerns about both climate change and oil-security have risen, the bioplastic demand drivers have now grown to include carbon capture and oil-replacement. Despite vigorous programmes to reduce, re-use and recycle oil based plastics, some 5% of global oil production is still used in the manufacture of such plastics with their eventual disposal by incineration (and consequent carbon dioxide release) or by landfill. 

It is in this arena that bioplastics have a role in helping to address climate change and oil-scarcity issues by providing materials which capture carbon dioxide in production and reduce dependence on fossil-based scarce resource.

Technical Development

The pilot/development unit at our HQ in Southampton has been very active through 2008. Over 100 internal trials were undertaken through the year in the search for improved functionality and lower cost bioplastics. Further investment in pilot and testing equipment is expected for this unit in 2009. 48 trials were carried out at customer premises, as properties of new materials were explored and our customers evaluated both existing and new products, and we were very pleased that over 60% of these led to production orders.

Bioplastics remain at an early stage of development in comparison with their oil based equivalents. Stanelco continues to invest in research and development that seeks to improve the functional properties on these materials in carefully selected areas.

The growing technical team have also been active in supporting customer trials in locations from Manchester to Mexico. This team is building its understanding of how Stanelco's bioplastic materials behave on a wide variety of processing equipment which is normally used for the transformation of petrochemical based plastics. This knowledge base is enabling quicker deployment of new products.

Commercial Activity

The commercial team built sales and developed relationships with important customers through the year. Marketing activity has been targeted at the conversion area of the supply chain as well as on brand owners. It has been pleasing to see that a number of blue chip customers are now using or evaluating Stanelco's bioplastics and we have begun to develop some important development relationships.

These activities were further enhanced in the year with the re-opening of a presence in North America. An individual has been engaged to lead this drive who has had 10 years of successful experience developing sales of biomaterials in the NAFTA region. This re-engagement in North America is being undertaken with limited overheads and in a targeted manner. The early signs from this work are promising with a greater level of customer contact and pre-commercial trials particularly in the areas of personnel care, electronics and horticulture.

Production

Biotec manufactures biodegradable products from its base in Germany to support the sales and manufacturing activities of Stanelco and SPhere. Stanelco holds a 'Golden Share' in the ownership arrangement with SPhere until 31 December 2009. Following the lapse of the Golden Share, shareholder control at Biotec will move to a 50/50 basis and Stanelco will no longer consolidate 100% of Biotec.

Biotec is a capable and modern automated facility that, although it remains unproven by demand, may be able to flex up to 20,000 tonnes per annum in its current footprint/configuration. The local team coped well with the 2008 demand increases, demonstrating significant flexibility. There is clear capability well above existing demand levels and no further capital investment of note is planned.

Other Revenue

In other product areas, royalty and commission agreements continue in place for Quantum Finish with Reckitt Benckiser. FrogPack, a novel cardboard box, is being marketed by Packology under a revenue sharing agreement. This follows extensive testing by Packology that has demonstrated enhanced strength properties. FrogMat, a re-pulpable protective packaging with cushioning properties, has been licensed to Monosol. Additional royalty payments of £0.3m were received in the year, in settlement of a claim for royalties with regard to the Aquasol portfolio. The company continues to license or sell IP where it considers others are best placed to exploit any inherent opportunity.

Biotec Litigation

Novamont S.p.A ('Novamont') has brought proceedings against Biotec Biologische Naturverpackungen GmbH & Co KG, Germany ('Biotec') claiming infringement of the French and Italian designations of Novamont's European Patent Numbers EP 0 327 505, EP 0 947 559 and EP 0 937 120 (the 'Novamont Patents').  

Biotec is defending these claims robustly. The proceedings are continuing and a judgment is not expected for between 6 months and 2 years for either the French or the Italian proceedings. Stanelco and Biotec continue to take professional and technical advice with regard to this litigation and are confident of a successful outcome.

Stanelco RF Applications

RF sales increased by 2% while the loss from operations before exceptional items was reduced to £0.1m from £0.3m, with robust cost management.

The majority of the business continues to be spread across RF furnaces for the optical fibre market, plastics welders for a wide variety of applications and associated spares and service.

The business has launched a variety of new products which have been welcomed by the customers and have begun to test the boundaries of the RF technology. In December we shipped the largest fibre optic furnace system we have built, this included Stanelco's new induction generator.

Development activity continues with investment in a number of product areas where we believe that competitive advantage can be achieved.

The business has begun to broaden its RF product offering into new areas such as induction heating and has had early success. These are market areas where the business had competed historically and retains the brand awareness and technical capability to perform and grow.

Neil Martin was appointed General Manager of the business in June. The team was also further reinforced at a commercial level later in the year. Sales channels have been further enhanced with representation in USA, India and China.

Whilst the enquiry level remains robust, we are conscious that investment in capital goods is often discretionary in recessionary times.  

Financial review

Review of operations

Group revenues increased in the year from £8.1m to £14.8m driven primarily by increased BioPlastics sales, as demonstrated in the table below: 

		2008 £'m	2007 £'m
Revenue by business activity
BioPlastics		13.7	7.0	96%
RF Applications		1.1	1.1	2%
TOTAL		14.8	8.1	84%
Loss from operations (before exceptional items)
BioPlastics		(0.8)	(0.7)
RF Applications		(0.1)	(0.3)
Central Costs		(1.9)	(2.1)
TOTAL		(2.8)	(3.1)

The cost base also increased in the BioPlastics division as a new team was recruited in the UK to push forward product development and take responsibility for customer sales. These additional costs included those resulting from the establishment of a technical development team and pilot facility in Southampton and the creation of a European and US sales presence, all considered essential to drive revenue growth. The BioPlastics' cost base was also impacted adversely by an increase in raw material costs during the year (which significantly impacted the Group's gross margin) and the movement in the Euro exchange rate which increased (in Sterling terms) the running costs of the Group's German subsidiary, Biotec.  The exchange rate movement did, however, increase the gross profit of Biotec and the value of the goodwill.

In the RF division, revenues were maintained whilst new products were developed. The restructuring of the business that took place in 2007 delivered a lower cost base and the losses in the division reduced as a result.

There were no exceptional items in 2008, so the reported loss from operations was also £2.8m (2007: £5.6m).  Product development costs of £0.4m (2007: £0.1m) were capitalised in the year.  Tax R&D claims resulted in a tax credit for the year of £169,000 (2007: charge of £31,000) 

Finance related income, including foreign exchange gains, totalled £2.3m for the year (2007: £0.6m). This included a £1.9m gain (2007: £0.5m) relating to the retranslation of an intercompany loan between Stanelco and Biotec.  The loss before tax for the year was £0.5m (2007: £5.0m), giving a loss per share of 0.010p (2007: 0.169p).

Cashflow

The net cash outflow from operating activities was £1.4m, down from £5.1m the previous year. The closing cash position was £6.4m.

Key performance indicators (KPIs)

The Board is focussed on a number of Key Performance Indicators (KPIs) that are used to measure performance.

The Group's performance against these metrics for 2008 was as follows:

a) Financial measures
Growth in total revenues	- increased by £6.7m (84%)
Growth in bioplastic revenues    from direct sales by Stanelco plc	- increased by £1.4m (385%)
Growth in total gross margin	- increased by £1.0m (52%)
Reduction in loss from operations    before exceptional items	- reduced by £0.3m (10%)
b) Other measures
Number of sets of customer trials in BioPlastics	48
Percentage of trials leading to    production orders	60%
New product launches in RF	5

Employees

There were several further additions at senior level to reinforce our commercial and technical capabilities. Despite this, average employee numbers reduced to 48, down from 54 in the previous year. 

I recognise the outstanding contribution made by Stanelco staff, who have delivered high levels of growth through this year and who continue to focus on developing successful products and business.

Paul Mines

Chief Executive Officer

CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2008
		2008	2007
	Note	£'000	£'000
REVENUE	1	14,803	8,064
Cost of sales		(11,976)	(6,201)
GROSS PROFIT		2,827	1,863
Recurring administrative expenses		(5,628)	(4,979)
Exceptional items	2	-	(2,527)
LOSS FROM OPERATIONS	1	(2,801)	(5,643)
LOSS FROM OPERATIONS EXCLUDING EXCEPTIONAL ITEMS		(2,801)	(3,116)
Investment revenue		371	614
Finance charges	3	(242)	(458)
Foreign exchange gain		2,205	469
LOSS BEFORE TAX		(467)	(5,018)
Taxation		169	(31)
LOSS FOR THE YEAR		(298)	(5,049)
Attributable to:
Equity holders of the parent		139	(4,583)
Minority interest		(437)	(466)
RETAINED LOSS FOR THE YEAR		(298)	(5,049)
Basic and diluted loss per share - pence		(0.010)	(0.169)
The calculation of earnings per share is based on the loss after tax for the year of £298,000 (2007: loss of £5,049,000) and a weighted average of 3,049,093,286 (2007: 2,996,577,096) ordinary shares in issue.

CONSOLIDATED BALANCE SHEET
As at 31 December 2008
		2008		2007
		£'000	£'000	£'000	£'000
NON-CURRENT ASSETS
Goodwill		16,746		12,725
Other intangible assets		501		216
Property, plant and equipment		5,120		4,364
			22,367		17,305
CURRENT ASSETS
Inventories		2,502		6,519
Trade and other receivables		2,157		1,878
Cash and cash equivalents		6,381		8,059
			11,040		16,456
TOTAL ASSETS			33,407		33,761
CURRENT LIABILITIES
Trade and other payables		1,816		4,765
Amounts payable in respect of deferred consideration		-		466
Promissory notes		7,543		5,672
Obligations under finance lease		294		169
Short term provisions		-		441
			9,653		11,513
NON-CURRENT LIABILITIES
Obligations under finance lease		899		938
			899		938
TOTAL LIABILITIES			10,552		12,451
NET ASSETS			22,855		21,310
EQUITY
Share capital		3,078		3,012
Share premium account		38,623		38,199
Share options reserve		494		883
Translation reserve		1,445		102
Retained losses		(24,917)		(25,056)
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT			18,723		17,140
Minority interest		4,132		4,170
			4,132		4,170
TOTAL EQUITY			22,855		21,310

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 December 2008
	Share capital	Share premium account	Share options reserve	Translation reserves	Retained losses	Total equity attributable to equity holders of the parent	Minority interest	TOTAL EQUITY
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at  1 January 2007	2,978	37,932	1,016	293	(20,473)	21,746	3,072	24,818
Exchange differences arising on translation of overseas operation	-	-	-	(191)	-	(191)	835	644
Net income recognised directly in equity	-	-	-	(191)	-	(191)	835	644
Loss for the year	-	-	-	-	(4,583)	(4,583)	(466)	(5,049)
Total recognised income and expense for the year	-	-	-	(191)	(4,583)	(4,774)	369	(4,405)
New share capital subscribed	34	267	-	-	-	301	-	301
Capital contribution to subsidiary from minority shareholder	-	-	-	-	-	-	729	729
Share options charges in year	-	-	(133)	-	-	(133)	-	(133)
Balance at  31 December 2007	3,012	38,199	883	102	(25,056)	17,140	4,170	21,310
Balance at  1 January 2008	3,012	38,199	883	102	(25,056)	17,140	4,170	21,310
Exchange differences arising on translation of overseas operation	-	-	-	1,343	-	1,343	399	1,742
Net income recognised directly in equity	-	-	-	1,343	-	1,343	399	1,742
Loss for the year	-	-	-	-	139	139	(437)	(298)
Total recognised income and expense for the year	-	-	-	1,343	139	1,482	(38)	1,444
New share capital subscribed	66	424	-	-	-	490	-	490
Share options charges in year	-	-	(389)	-	-	(389)	-	(389)
Balance at 31 December 2008	3,078	38,623	494	1,445	(24,917)	18,723	4,132	22,855

CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2008
	2008	2007
	£'000	£'000
Loss after tax	(298)	(5,049)
Adjustment for:-
Taxation	(169)	31
Foreign exchange gain	(2,205)	(469)
Finance charges	242	458
Investment revenue	(371)	(614)
Loss from operations and exceptional items	(2,801)	(5,643)
Adjustment for:-
Amortisation and impairment of intangible fixed assets	148	2,424
Depreciation of property, plant and equipment	681	440
Share based payments	(389)	(133)
Loss/(profit) on disposal of property, plant and equipment	2	(204)
Decrease in provisions	(441)	(416)
Foreign exchange	81	469
Operating cashflows before movement of working capital	(2,719)	(3,063)
Decrease/(increase) in inventories	4,956	(4,665)
Decrease in receivables	12	1,279
(Decrease)/increase in payables	(3,612)	1,419
Cash utilised by operations	(1,363)	(5,030)
Tax received	169	403
Interest paid	(160)	(458)
Net cash outflow from operating activities	(1,354)	(5,085)
Investing activities
Interest received	371	614
Proceeds on disposal of property, plant and equipment	2	673
Investment in intangible assets	(416)	(71)
Purchase of property, plant and equipment	(307)	(1,029)
Settlement of deferred consideration	(487)	(1,909)
Net cash used in investing activities	(837)	(1,722)
Financing activities
Repayment of loan capital	-	(5)
Repayment of obligations under finance lease	(219)	(157)
Proceeds from the issue of shares	482	301
Minority interest investment from joint venture partner	-	729
Proceeds from leaseback	-	1,300
Net cash from financing activities	263	2,168
Net decrease in cash and cash equivalents	(1,928)	(4,639)
Cash and cash equivalents at the beginning of the year	8,059	12,916
Effect of foreign exchange rate changes	250	(218)
Cash and cash equivalents at the end of the year	6,381	8,059

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
1. SEGMENTAL INFORMATION BY BUSINESS ACTIVITY
For the year ended 31 December 2008
			BioPlastics		RF Applications		Central Costs		Total
			£'000		£'000		£'000		£'000
Revenue:
External sales			13,728		1,075		-		14,803
Depreciation/amortisation			(708)		(118)		(3)		(829)
Share based payments			42		(24)		371		389
LOSS FROM OPERATIONS			(844)		(15)		(1,942)		(2,801)
Interest received									371
Finance charges									(242)
Foreign exchange gain									2,205
LOSS BEFORE TAXATION									(467)
Taxation									169
LOSS FOR THE YEAR									(298)
For the year ended 31 December 2007
			BioPlastics		RF Applications		Central Costs		Total
			£'000		£'000		£'000		£'000
Revenue:
External sales			7,005		1,059		-		8,064
Exceptional items			(438)		(500)		(1,589)		(2,527)
Depreciation/amortisation			(409)		(145)		-		(554)
Share based payments			(22)		(58)		213		133
LOSS FROM OPERATIONS			(1,132)		(835)		(3,676)		(5,643)
Interest received									614
Finance charges									(458)
Foreign exchange gain									469
LOSS BEFORE TAXATION									(5,018)
Taxation									(31)
LOSS FOR THE YEAR									(5,049)

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
2. EXCEPTIONAL ITEMS
			2008	2007
			£'000	£'000
Terminated operations			-	217
Impairment of intangible assets			-	2,310
			-	2,527
3. FINANCE CHARGES
			2008	2007
			£'000	£'000
Finance leases			108	100
Bank loan and other interest			52	64
Interest on promissory notes			61	56
Finance charge on deferred consideration			21	238
			242	458
4. DIVIDEND
The directors do not recommend the payment of a dividend.
5. BASIS OF PREPARATION

The financial information set out in this preliminary announcement has been based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU.  Whilst the financial information has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS early in April 2009.

The financial information has been prepared under the same accounting policies as the 2007 financial statements.

6. NON-STATUTORY FINANCIAL STATEMENTS

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2008 or 2007 but is derived from those financial statements.  Statutory financial statements for 2007 have been delivered to the Registrar of Companies. Those for 2008 will be delivered following the Company's Annual General Meeting, which will be convened on 24 April 2009. The auditors have reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain any statements under Section 237(2) or (3) of the Companies Act 1985.

This report was approved by the Board of Directors on 25 March 2009.

 

END

 

 

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