Preliminary Results

RNS Number : 0049L

Stanelco PLC

29 April 2010

 



29 April 2010

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

Preliminary Results

Stanelco Plc announces its Preliminary Results for the year ended 31 December 2009. 

Financial Highlights

·      Group revenue up 21% to £17.9m (2008: £14.8m), ahead of market expectations

·      Loss from operations reduced to £2.6m (2008: loss £2.8m), despite £0.7m of additional legal costs incurred in Biotec in defending the Novamont S.p.A legal action

·      Loss from operations before share option charges reduced to £2.5m (2008: loss £3.2m)

·      Loss before tax increased to £3.6m (2008: loss £0.5m) after partial reversal of foreign exchange gain on intercompany loan

·      Closing Group cash position £3.2m (2008: £6.4m), with £0.5m cash absorbed into working capital to support growth

·      Central costs before share option charges reduced to £1.7m (2008: £2.3m)

·      Planned equity fund raising to raise up to £3.5m to fund ongoing working capital requirements and Group development

Business Highlights

·      23% growth in BioPlastics Division sales, including 30% growth in sales made by the UK bioplastics business, Biome Bioplastics

·      BioPlastics profit from operations £0.5m before Biotec legal costs (2008: loss £0.2m)

·      23% growth in sales in RF Applications Division

·      RF Applications Division now profitable with very strong order pipeline

·      New bioplastics products launched in early 2010 broaden range of end-use applications for Biome Bioplastics

·      French court issued favourable findings in April 2010 in relation to patent infringement claims made by Novamont S.p.A.

·      Development of bioplastics products with major international customers accelerates

Planned Fundraising

·      The Group is also seeking to raise up to £3.5 million (before expenses) from a planned fundraising in May 2010, to be achieved through a placing and open offer with the net proceeds being used:

-    to support the continued development of the Group's bioplastics products and bioplastics market position with a view to commercial and technical leadership in this arena;

-    to fund the Group's central overheads and listing costs until sufficient scale has been reached; and

-    to strengthen the Group's working capital position as it experiences continued strong sales growth.

·      The Board has already received non-binding indications of support amounting to more than 60% of a minimum target of £2.7m

·      The fundraising would be conditional upon, amongst other things, shareholder approval.

·      The Company anticipates making a further announcement, setting out the detailed terms of the proposed fundraising, the preparations for which are well advanced, next month.

 John Standen, Non-Executive Chairman said:

"We are particularly pleased to be advancing strongly in our bioplastics business, in line with our strategic objectives.  We experienced significant levels of growth across both of the Group's Divisions and are on a path towards Group profitability.

"The Board is confident that there are exciting future opportunities that exist in our markets and that we are well positioned to capitalise on them.   To enable us to continue to fund our ongoing working capital requirements and to develop the Group we are seeking the support of shareholders for a fundraising of up to £3.5m in May 2010."

Paul Mines, Chief Executive Officer said:

"2009 was another year of sales growth and reducing operating loss.  The new bioplastic product launches have been received positively by our customers and the markets.  Our strategy to build a leading bioplastics business, well founded on good science, excellent applications engineering and deep relationships with blue-chip clients is maturing and accelerating.  I am delighted to see the level of indicative support we have received already for the placing element of the current fundraising."

- 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

Operationally, this has been a strong year for Stanelco despite the general economic environment and more specific difficulties in the global plastics markets.  Revenue growth exceeded 20% in both of the Group's divisions, and in the UK-based bioplastics business (rebranded Biome Bioplastics in January 2010) revenue growth was 30%.  These results support our strategy to develop aggressively our bioplastics business by working closely with major customers to provide products with the winning credentials of sustainability and biodegradation.

It is particularly pleasing to see that the significant growth in revenues enabled our BioPlastics Division to move into profit in 2009 (before the legal costs associated with the Novamont S.p.A. ("Novamont") patent litigation). This gives the Board encouragement that the underlying business model for our materials is robust.

The Group's loss from operations also reduced.  This improvement has come not only from the gross profit improvement and from revenue growth but also a tight focus on expenditure/cash that has seen central costs reduce by £0.6m (before non-cash share option charges) and continuing improvement in the RF Applications Division.

The Board believes that shareholders are best served by this strategy of driving revenue growth and controlling costs with the aim of moving the Group towards profitability.  The commercial capability of the technology is emerging and we have a team in place providing the innovative development of a broader range of products that can accelerate value generation for the benefit of the business and its shareholders.

Further funding is necessary in order to underpin and achieve this and the Board has decided to proceed with the planned fundraising to ensure that the Group can fulfill its potential.

Results

Group revenues increased by £3.1m to £17.9m in the year ended 31 December 2009, an increase of 21% compared with the previous year. 

Biome Bioplastics increased its revenues by 30%, Biotec by 23% and RF Applications by 23%.

Gross profit for the year increased from £2.8m to £3.6m and the gross margin increased to 20% (2008: 19%).

The loss from operations for the year reduced to £2.6m (2008: £2.8m) despite £0.7m of additional legal costs being incurred in Biotec in 2009 in defending the Novamont legal action. 

After foreign exchange losses and gains (mainly on inter-company loans), the loss before taxation was £3.6m (2008: £0.5m), delivering a loss per share of 0.104 pence (2008: earnings per share 0.005 pence).

Our cash position at the year end was £3.2m, with a net cash outflow from operating activities of £2.5m and some absorption of cash into working capital as the business expanded (2008: £1.4m).

Strategy

Our Group strategy is to:

·      build a clear market leading position based on patented technology;

·      develop from existing IP base into in a range of new functional application areas where premiums can be obtained;

·      create and build bioplastic markets by working intimately with consumer facing international business; such development to be application lead rather than technology push; and

·      drive the businesses' differentiation by developing and retaining a team that is recognised as head and shoulders above the competition in application and product engineering.

Our continuing development work seeks not only to enhance the functional characteristics of its products but also to reduce the cost base of these materials in order to improve margins generated.  The Group intends to continue to protect its existing intellectual property in a robust manner and will seek to protect new developments through patents and confidentiality in an appropriate way.

It is pleasing to note that the French court took the view earlier this month that Biotec's original technology does not infringe Novamont's three patents and indeed, whilst one of these patents has already expired, a second was found to be partially invalid.  This allows the Group to proceed with increased confidence in the market.  All efforts have, and will continue to be made, to end this dispute as soon as possible if resolution in an equitable manner can be achieved.

We have had supportive feedback from customers following the branding of our UK bioplastics business as Biome Bioplastics and we will seek to develop this as a leading bioplastics industrial brand.  The Biotec joint venture will continue to be optimised for supporting the manufacturing scale-up of existing and new products.

We will continue to develop the RF Applications Division in-line with its re-emergence as a small scale OEM engineering business.  Opportunities will also be sought to accelerate the business to a meaningful scale or to realise best value for shareholders in other ways.

The Board has also examined all operational savings that can be made in order to underline to shareholders our belief that the current development strategy is working and will continue to do so. In support of our growth strategy the Directors will reduce their remuneration packages during this period of cash constraint by approximately 30% following successful completion of the fundraising described below and make further staff cost reductions.  These savings will reduce the cash burn in respect of central costs by approximately £0.3m per annum.

Planned Fundraising

The Board believes that this strategy will be the most viable way to build a valuable and fast growing business.  However, further funding will be required.

To continue to pursue the Group's intended strategy, the Company is seeking to raise up to £3.5 million (before expenses) from the planned fundraising in May 2010, to be achieved through a placing and open offer.  The net proceeds of the fundraising will be used:

·      to support the continued development of the Group's bioplastics products and bioplastics market position with a view to commercial and technical leadership in this arena;

·      to fund the Group's central overheads and listing costs until sufficient scale has been reached; and

·      to strengthen the Group's working capital position as Group experiences continued strong sales growth.

A minimum of £2.7 million will need to be raised for the fundraising to proceed.  Preparations for the proposed fundraising are well advanced and, as at the date of this announcement, the Board already had non-binding indications of support to subscribe for more than 60% of this amount, including 5% to be taken up by the Directors and senior management of the Group.   The Board considers that raising £3.5m would allow it to better maximise the opportunities for growth.

The placing and open offer will require a prospectus to be published by the Company, which will set out the background to and the reasons for the planned fundraising and its detailed terms.  This document is expected to be published by the middle of May and we expect the fundraising to be completed by early June 2010.   

In the event that the fundraising does not conclude successfully, the Group will be obliged to follow an alternate strategy that focuses principally on conserving its cash resources whilst seeking to realise potential value through an orderly disposal of the Group's assets.  The Board anticipates that such a strategy will almost certainly require a cessation of much of the Group's current growth and development activity and a significant reduction in central costs. 

Going concern

As explained above, in order to continue to pursue the Group's intended strategy, the Company is seeking to raise up to £3.5 million from an equity fundraising.   If this fundraising is not successful then the Board will be obliged to follow the alternate strategy set out above.  The Board considers that ceasing certain of its activities and seeking an orderly disposal of the Company's investments should generate sufficient cash to enable the Company and the Group to meet operational requirements whilst the Board pursues alternatives for realising shareholder value.  However, successful disposal of the Group's investments cannot be guaranteed nor can the swift liquidation of its working capital or the continuing growth of the RF Applications Division if it becomes more closely constrained in terms of cash.

The Board has concluded that the combination of these circumstances represents a material uncertainty that casts significant doubt over the Company's ability to continue as a going concern and that, therefore, the Company may be unable to realise its assets and discharge its liabilities in the normal course of business.  Nevertheless, after making enquiries and considering the uncertainties described above, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and, accordingly, that it is appropriate to adopt the going concern basis in the preparation of the Company and the Group's financial statements.

Board and Employees

Our development path this year owes much to the support of our employees and their passion for building a business around these technologies.  I would like to thank them for all their efforts for the Group.  I believe we have strong teams working throughout the business to continue the Group's progress.

Shareholder Meetings

It is anticipated that the formal announcement of the fundraising and the publication of the prospectus will occur in May.  Shareholder approval of the placing and open offer will then be sought at a General Meeting of the Company which will be convened approximately 17 days later.

To allow time for the fundraising to be considered fully and to complete, the Board is proposing to delay this year's Annual General Meeting until late June 2010. 

Current Trading

As reported in the Group's Interim Management Statement for the period 1 January 2010 to 28 April 2010 released today, Group revenues have continued to grow strongly during the three months to 31 March 2010 and the Group's overall trading performance remains in line with the Board's expectations.

Following the expiry of the rights attaching to the "Golden Share" which the Company held in its 50/50 joint venture, Biotec, the Company will no longer consolidate 100% of Biotec's results.  The revenues and cash balances reported below for 2010, therefore, include 50% of the figures reported by Biotec and the prior year figures are reported on the same basis to allow a like-for-like comparison.

Group revenues in the three months to 31 March 2010 increased from £2.1m to £2.6m on a like-for-like basis (including 50% of Biotec's revenues), an increase of 26% compared with the same period last year.  This reflected a 76% increase in bioplastic sales made by Biome Bioplastics, a 58% increase in sales in RF Applications Division and a 7% increase in third party sales from our joint venture, Biotec.

Our cash position at 31 March 2010 was £2.4m, including 50% of Biotec's cash balance.

Outlook

The Board believes that it has demonstrated the potential for creating value for shareholders by sustainable growth of the bioplastics business, and believes there are substantial opportunities in its product and sales development pipeline to accelerate this further in 2010 and beyond.

In 2009 we have delivered good top line growth and made significant progress with product development leading to the launch of several new market leading bioplastics.  A focus on cost control and reduction has ensured that the effect of this revenue has come through to bottom line improvement despite the increased costs of defending the Biotec technology from the Novamont challenge.

This strong revenue growth has continued into 2010 and the Board is confident that there are both exciting future opportunities exist in our market and that we are well positioned to capitalise on them.

We now intend to seek support from our shareholders to enable us to fund the accelerating development of the Group.

John Standen

Chairman

Chief Executive's Statement

Performance

The Stanelco team have delivered another year of revenue growth and reduced operating loss; the third in a row.  Although 2009 was a difficult year in the global plastics markets, I am pleased that we have been able to keep the BioPlastics and RF Applications Divisions both growing and improving their margins during this period.

Operational Review

Stanelco BioPlastics

The BioPlastics business has continued to make further strong progress with sales increased from £13.7m to £16.6m.  Improvement in gross margin helped to move the consolidated BioPlastics business to an underlying operating profit of £0.5m before the Biotec legal costs of £1.3m. It is encouraging to see this demonstration of the underlying commercial viability of the bioplastics technology.

Stanelco's direct sales of bioplastics though Biome Bioplastics increased from £1.8m in 2008 to £2.4m in 2009 as the commercial team built sales with both existing and new customers.  The majority of these sales remain on the original products developed by Biotec and have been generated by working closely with customers to realise their product concepts, deliver appropriate economics with bioplastics and to scale-up their production processes.

As the year progressed, we were able to take some of the new products, developed in Biome Bioplastics at the Southampton development centre, out into the market to test their capability on full scale production lines.  As confidence in their performance has grown, this has led to commercial launches to broader markets in early 2010.

Markets

Conventional, oil based plastics are ubiquitous - many were invented in the early 20th century and they became part of everyday life from the 1950s onwards.  Now, they can be found throughout our homes and cars, in our workplaces and leisure activities.  They range from short life packaging products that are used for a day and then discarded, through consumer durables and electronics to long life physical infrastructure that endures for decades.

Oil based plastics have been so successful due to their low cost related to their oil based origins and their ability to be processed rapidly in mass production.  Modern bioplastics, such as those now launched by Biome Bioplastics, are now challenging the dominance of their "petro" cousins.  These bioplastics are being developed with the functional capability to substitute in many existing plastic applications and allowing them to be transformed on the existing infrastructure of conversion equipment. 

Conventional wisdom regarding bioplastics sees them used in shopping bags, short-life packaging and disposable items but this is changing as their attributes are enhanced.   Bioplastics can, but don't have to, decompose rapidly.  Advances in science allow them to perform their required uses for decades if required.

Today's bioplastics are derived from sustainable plant sources, reducing their exposure to oil price inflation.  As the underlying biomass for bioplastics is grown, CO₂ is converted into the polymer structures that form these innovative materials.  This CO₂ is held in the plastic's structure until it is released through the materials eventual degradation that can range from months to decades later.  Consider it a form of "material" carbon sequestration that produces a useful product.

A consensus about the rate of growth in the bioplastics market in 2009 has yet to emerge, although the rate of growth was subdued in comparison with 2008.  It is encouraging that at a time when the oil-based plastics industry was subdued, a number of the bioplastics industry players were reporting growth.

In 2009, the Group experienced increasing interest in its products due to their renewable content. Whilst it remains important that in many applications our products biodegrade or compost, we are now often asked to deliver materials with a specified level of renewable content/new carbon.

There is also improving clarity that further substantial investment is being made in pre-cursor materials for our bioplastics.  This will ensure both that our growth is not inhibited from scarcity of supply and the cost base of these materials continues to reduce.

Technical Development

The Biome Bioplastics team at Southampton is working to improve the functional properties of bioplastic materials in a number of carefully selected areas.  This work is more often undertaken with a lead customer for a given sector to ensure the commercial viability of the product.

There was one addition to the team in the year as the pipeline of new products was prepared.  There has also been further minor investment at the Southampton pilot/development unit during 2009.  This has been focused on product testing and small scale industrialisation equipment.  This facility now has the capability to manufacture small quantities of new bioplastics and to trial them through several common industrial conversion processes.

The business continues to make use of both university and commercial laboratory facilities, where appropriate.  During the year we extended such collaborations with a number of practical units in leading universities.  It has been encouraging to see their support for our development and their interest in our new range of materials.

As the pipeline of new and novel materials from Biome Bioplastics has begun to mature, the business has sought to protect this IP.  The patent application process has been initiated on a number of candidate compositions.

Commercial Activity

The commercial team built sales and developed relationships with a number of important customers through the year.

Sales activity has been targeted at both the conversion area of the supply chain as well as brand owners.  Work with a number of blue chip customers now using or evaluating Stanelco's bioplastics is ongoing and these relationships continue to develop.  These customers now include end-use applications in the horticulture, electronics, stationery products, personal care, food service and the snack markets.

Following the re-entry into the North American market in 2008, our sales office in the USA has begun to build a number of interesting positions.  A personal care launch has taken place whilst other activity has included electronics and horticulture.

The successful launch of the Biome Bioplastics brand took place in January 2010.  The re-branding has been well received by customers. 

This commercial progress made in 2009 has continued and accelerated into the first quarter of 2010 with Biome Bioplastics exhibiting 76% growth compared to the same period in 2009.

In the first quarter of 2010 a number of notable projects that have been in development for some time have moved towards substantive commercial scale:

·      A producer of personal care products has begun a controlled launch of a new product, made from Biome Bioplastics materials, with a major USA retail chain and is now planning a European launch.

·      A large multinational beverage and confectionery manufacturer has been developing and evaluating a range of Biome materials for confectionery packaging for two years. This company is committed to progressively introducing sustainable materials into their product range.  Full scale trials are underway into two main application areas, one of which, for secondary packaging, is expected to result in substantial sales in the second half of this financial year. The second, requiring modified atmosphere packaging is expected to result in further volumes from 2011, onwards.

·      Having tested Biome resins on full-scale equipment a major American supplier to the food processing market is keen to take the products to market. Having already purchased initial quantities, anticipated success in composting trials could result in this supplier becoming a substantial customer in the second half of this year.

·      One of the world's largest suppliers of horticultural plastic products, this major producer carried out a number of successful full-scale processing trials, of Biome blends, in 2009.  Based on this success, they have since been carrying out field trials in a range of climatic locations. The first set of these trials is nearing completion and is said to be positive.  Although some of the trials will take several more months, larger sales are expected to begin in the second half.  By 2011, this could be another substantial customer.

·      A European retail chain has been assessing making one of its high profile products from Biome bioplastics. Several full scale production trials have been completed and assessed by their convertor. We are now in commercial discussions to firm up on prices and volumes for 2010.

·      Two of the world's largest suppliers to the catering industry are evaluating the new BiomeHT range, which has higher temperature resistance than conventional bioplastics, for hot food and beverage use. The products were developed in association with these companies.

Production

Biotec manufactures biodegradable products from its base in Germany to support the sales and manufacturing activities of Stanelco and SPhere, our joint venture partner.

Previously, Stanelco held a casting vote over certain matters in the Biotec Board (through a "Golden Share") albeit this has not been utilised since its acquisition in 2005. This arrangement expired on 31 December 2009 and shareholder control of Biotec with SPhere SA moved seamlessly to a clear 50/50 basis from 1 January 2010.

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 unit is now also being used to assist in the industrialisation of products developed within Biome Bioplastics.

The Biotec team continued to work on cost minimisation and ensuring that quality performance remained at a high level. 

Expenses

There has been a continued focus on the eradication of waste and cost as part of a continuous improvement programme.  This has ranged across material and energy efficiency to challenging our suppliers for better value. Rationalisation of our central team and reduction in third party expenses has allowed central costs to be reduced by £0.6m (before non-cash share option charges).

Biotec Litigation

Stanelco announced on 29 May 2007 that the Board was evaluating claims against Biotec's technology made by Novamont (a competing bioplastics business).  Subsequent updates have clarified that Novamont had brought proceedings against Biotec and SPhere and certain group companies of SPhere 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.  These actions were taken in the first instance by Novamont in both the French court and in two courts in Italy (Milan and Turin).

On 16 April 2010, the French Court notified Biotec of its favourable finding in relation to the patent infringement claims made by Novamont.  Some three years after this case was launched, this is the first court finding on the merits of this case, and validates Stanelco's decision to mount a robust defence of Biotec's technology.

It should be noted that this French court finding does not affect the cases (referred to above) being pursued in Italy and that these may be expected to continue over the following months.  Further action by the claimant, Novamont, by way of appeal in the French court is also possible.

However, Stanelco and Biotec continue to take professional and technical advice with regard to this litigation and are confident of further successful court outcomes.  The Board has sought and will continue to seek the complete resolution of this matter as soon as possible provided the outcome is equitable.

Stanelco RF Applications

RF Applications' sales increased by 23%, driving the unit from a loss into a modest profit.

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

There are clear signs that the growth in the fibre optic market in Asia is accelerating.  This is being driven by Asian telecoms infrastructures moving directly to fibre based local connections rather than initial copper wiring.  In addition, Western market growth has resumed as use of video based services through the internet has begun to stretch the utilisation of networks.

The business won several large orders for multiple fibre optic systems in late 2009 and early 2010 that provide good revenue visibility for 2010.  The RF Applications Division appears well placed to capitalise on this growth.  A number of our long-standing customers are embarking on large scale expansion projects and Stanelco's furnaces have been specified to be included in a variety of larger fibre making systems.  The team has been undertaking continual work both to enhance the capability of our furnaces and to reduce their inherent costs which appears to have positioned us as the supplier of choice to this market.

The work to broaden its RF product offering into new areas such as industrial induction heating has continued to pay dividends with several of such units designed and manufactured in 2009.  The business is receiving an increasing number of tenders for this area and we are confident we can capture a reasonable share of this market.

I am pleased that the business has continued its growth path through the macro-economic difficulties of 2009 and it enters 2010 with a substantially larger order book than seen in the last three years.

Financial review

Revenues

Group revenues increased in the year from £14.8m to £17.9m driven by strong growth in all parts of the Group's operations:

	2009 £'m	2008 £'m	Growth
REVENUES by business activity
Biotec	14.1	11.5	23%
Biome Bioplastics	2.4	1.8	30%
Licence income	0.1	0.4
Total BioPlastics	16.6	13.7	21%
RF Applications	1.3	1.1	23%
TOTAL	17.9	14.8	21%

30% revenue growth was achieved in the UK Bioplastics business which was re-branded as Biome Bioplastics in January 2010.

From 1 January 2010, Biotec will no longer be treated as a subsidiary of the Group as the rights attaching to the "Golden Share" in the Biotec joint venture, which gave the Group control of the business, expired at the end of 2009.  From 2010 onwards the Group will consolidate only 50% (its share) of the joint venture into its results.  On that basis, the Group revenues for 2009 would have been £10.9m (2008: £9.1m).  Biotec's revenues grew by 23% in the year.

Licence revenue in 2008 benefitted from a one-off £0.3m receipt in settlement for a claim for royalties for an item of intellectual property.

In total, the revenues of the BioPlastics division grew by 21%.

In RF Applications revenues grew by 23%.

Operating profits/(losses)

The Group's loss from operations for the year reduced from £2.8m to £2.6m.  Before share option charges/credits, the Group's loss from operations reduced from £3.2m to £2.5m.

An analysis of the loss from operations by business activity is given in the table below:

	2009 £'m	2008 £'m
PROFIT/(LOSS) FROM OPERATIONS by business activity
BioPlastics - before Biotec legal costs	0.5	(0.2)
Biotec legal costs	(1.3)	(0.6)
Total BioPlastics	(0.8)	(0.8)
RF Applications	-	(0.1)
Central Costs	(1.8)	(1.9)
TOTAL	(2.6)	(2.8)

The results of the BioPlastics Division have been depressed by the significant level of legal costs in Biotec resulting from the defence of the Novamont litigation.  Biotec's total legal costs amounted to £1.3m in 2009 (2008: £0.6m).  During the year, a significant amount of work was done in putting together a robust defence of Novamont's claims.  Before legal costs, the BioPlastics Division made a £0.5m profit from operations compared with a loss of £0.2m in 2008.  This move into profit marks a major milestone for the business and came from the increasing revenues and an improvement in the gross profit margin.

The RF Division made a small profit in the year compared with a small loss in 2008.  A small increase in salary costs for the new sales team were more than offset by the increasing revenues and improved gross margin.

Central costs for the year included a share option charge of £0.1m.  In 2008, these costs benefitted from a £0.4m share option credit.  Before these share option charges/credits, central costs reduced from £2.3m in 2008 to £1.7m in 2009.

Before share option charges/credits and before the Biotec legal fees, the Group's loss from operations reduced from £2.6m to £1.2m, reflecting the strong revenue growth across the business and the tight control on costs.

Product development costs of £0.4m (2008: £0.4m) were capitalised in the year.  Tax R&D claims resulted in a tax credit received in the year of £0.1m (2008: credit of £0.2m).

Finance related charges, including foreign exchange gains and losses, totalled £0.9m for the year (2008: income of £2.3m).  This included a £0.7m loss (2008: £2.1m gain) relating to the retranslation of intercompany balances. 

After foreign exchange losses and gains, the Group's loss before tax for the year was £3.6m (2008: loss £0.5m), giving a loss per share of 0.104p (2008: earnings per share 0.005p).

Cashflow

The net cash outflow from operating activities in the year was £2.3m (2008: £1.4m), reflecting primarily the loss from operations of £2.6m.  £0.5m of cash was absorbed into working capital as the business expanded but this was offset by £0.8m added back in the cash flows for depreciation and amortisation.   The closing cash position was £3.2m.  The future funding requirements of the business are discussed in the Chairman's Statement.

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 2009 was as follows:

a)   Financial measures
Growth in total revenues	- increased by £3.1m (21%)
Growth in bioplastic revenues   by Biome Bioplastics	- increased by £0.6m (30%)
Growth in total gross margin	- increased by £0.8m (29%)
Reduction in loss from operations  before share option charges/credits	- reduced by £0.7m (22%)
b)   Other measures
Number of sets of customer trials in BioPlastics	60
Percentage of new customer trials leading to   production orders	50%
New product launches in RF	3

The number of sets of customer trials in the year increased from 48 to 60.  There were also approximately 50 new product trials carried out with various convertors, as we worked to finalise the characteristics of the new product range.  50% of trials with new customers led to production orders.  This was down from 60% in 2008 when we were working with a smaller number of customers.

Employees

I would like to thank the Stanelco staff for another outstanding contribution this year, delivering high levels of growth across the Group and developing more successful products and business.

Paul Mines

Chief Executive Officer

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 31 December 2009
		2009	2008
	Note	£'000	£'000
REVENUE	4a - 4b	17,911	14,803
Cost of sales		(14,263)	(11,976)
GROSS PROFIT		3,648	2,827
Recurring administrative expenses		(6,251)	(5,628)
LOSS FROM OPERATIONS	4a - 4b	(2,603)	(2,801)
Investment revenue		33	371
Finance charges		(167)	(242)
Foreign exchange (loss)/ gain		(815)	2,205
LOSS BEFORE TAXATION		(3,552)	(467)
Taxation		100	169
LOSS FOR THE YEAR		(3,452)	(298)
Other comprehensive income:
Exchange differences on translating
foreign operations		(562)	1,742
TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR		(4,014)	1,444
(Loss)/income for the year attributable to:
Equity holders of the parent		(3,195)	139
Minority interest		(257)	(437)
LOSS FOR THE YEAR		(3,452)	(298)
Total comprehensive (loss)/ income for the year attributable to:
Equity holders of the parent		(3,415)	1,482
Minority interest		(599)	(38)
TOTAL COMPREHENSIVE LOSS/ INCOME FOR THE YEAR		(4,014)	1,444
Basic (loss)/earnings per share - pence	6	(0.104)	0.005
Diluted earnings per share - pence	6	n/a	0.005

CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
As at 31 December 2009
		2009	2008
	Note	£'000	£'000
NON-CURRENT ASSETS
Goodwill	7	15,426	16,746
Other intangible assets	8	848	501
Property, plant and equipment	9	4,105	5,120
		20,379	22,367
CURRENT ASSETS
Inventories		2,558	2,502
Trade and other receivables		2,930	2,157
Cash and cash equivalents		3,219	6,381
		8,707	11,040
TOTAL ASSETS		29,086	33,407
CURRENT LIABILITIES
Trade and other payables		2,303	1,816
Promissory notes	10	6,999	7,543
Obligations under finance lease		297	294
		9,599	9,653
NON-CURRENT LIABILITIES
Obligations under finance lease		529	899
TOTAL LIABILITIES		10,128	10,552
NET ASSETS		18,958	22,855
EQUITY
Share capital		3,078	3,078
Share premium account		38,623	38,623
Share options reserve		611	494
Translation reserve		1,225	1,445
Retained losses		(28,112)	(24,917)
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT		15,425	18,723
Minority interest		3,533	4,132
TOTAL EQUITY		18,958	22,855

The financial statements were approved by the Board on 28 April 2010.

Signed on behalf of the Board of Directors

Paul R Mines (Chief Executive)

Susan J Bygrave (Group Finance Director)

28 April 2010

CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
As at 31 December 2009
	Share capital	Share premium account	Share options reserve	Translation reserves	Retained losses	Attributable to equity holders of the parent	Minority interest	TOTAL EQUITY
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2009	3,078	38,623	494	1,445	(24,917)	18,723	4,132	22,855
Share option charges in year	-	-	117	-	-	117	-	117
Transactions with owners	-	-	117	-	-	117	-	117
Loss for the year	-	-	-	-	(3,195)	(3,195)	(257)	(3,452)
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	(220)	-	(220)	(342)	(562)
Total comprehensive income for the year	-	-	-	(220)	(3,195)	(3,415)	(599)	(4,014)
Balance 31 December 2009	3,078	38,623	611	1,225	(28,112)	15,425	3,533	18,958
Balance at 1 January 2008	3,012	38,199	883	102	(25,056)	17,140	4,170	21,310
Share option credits in year	-	-	(389)	-	-	(389)	-	(389)
Issue of share capital	66	424	-	-	-	490	-	490
Transactions with owners	66	424	(389)	-	-	101	-	101
Loss for the year	-	-	-	-	139	139	(437)	(298)
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	1,343	-	1,343	399	1,742
Total comprehensive income for the year	-	-	-	1,343	139	1,482	(38)	1,444
Balance 31 December 2008	3,078	38,623	494	1,445	(24,917)	18,723	4,132	22,855

CONSOLIDATED STATEMENT
OF CASH FLOWS
For the year ended 31 December 2009
	2009	2008
	£'000	£'000
Loss from operations	(2,603)	(2,801)
Adjustment for:
Amortisation and impairment of intangible assets	78	148
Depreciation of property, plant and equipment	702	681
Share based payments	117	(389)
(Profit)/loss on disposal of property,plant and equipment	(2)	2
Decrease in provisions	-	(441)
Foreign exchange (loss)/gain	(88)	81
Operating cash flows before movement of working capital	(1,796)	(2,719)
(Increase)/decrease in inventories	(190)	4,956
(Increase)/decrease in receivables	(865)	12
Increase/(decrease) in payables	532	(3,612)
Cash utilised by operations	(2,319)	(1,363)
Corporation tax received	100	169
Interest paid	(99)	(160)
Net cash outflow from operating activities	(2,318)	(1,354)
Cash flows from investing activities
Interest received	33	371
Proceeds on disposal of property, plant and equipment	2	2
Investment in intangible assets	(432)	(416)
Purchase of property, plant and equipment	(69)	(307)
Settlement of deferred consideration	-	(487)
Net cash used in investing activities	(466)	(837)
Financing activities
Repayment of obligations under finance lease	(270)	(219)
Proceeds from the issue of shares	-	482
Net cash from financing activities	(270)	263
Net decrease in cash and cash equivalents	(3,054)	(1,928)
Cash and cash equivalents at beginning of year	6,381	8,059
Effect of foreign exchange rate changes	(108)	250
Cash and cash equivalents at end of year	3,219	6,381

NOTES TO THE CONSOLIDATED FINANCAL STATEMENTS

For the year ended 31 December 2009

1. 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 2009 or 2008 but is derived from those financial statements.  Statutory financial statements for 2008 have been delivered to the Registrar of Companies.  Those for 2009 will be delivered following the Company's Annual General Meeting, which will be convened in June 2010.  The auditors have reported on those accounts: their report contained an emphasis of matter paragraph drawing attention to the material uncertainty around going concern, as explained in Note 2 below.  Their report did not contain any statements under Section 498(2) or (3) of the Companies Act 2006.

The financial statements, and this preliminary statement, of the Group for the year ended 31 December 2009 were authorised for issue by the Board of Directors on 28 April 2010 and the balance sheet was signed on behalf of the Board by Paul R Mines and Susan J Bygrave.

2. BASIS OF PREPARATION

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU.

The Group's financial statements for 2009 have been prepared in accordance with the accounting policies adopted in the Group's financial statements for 2008 except for the adoption of IAS 1 Presentation of Financial Statements (Revised 2007) and IFRS 8 Operating Segments.

The adoption of IAS 1 (Revised 2007) does not affect the financial position or profits of the Group, but gives additional disclosures.  The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged, however, some items that were recognised directly in equity are now recognised in other comprehensive income, for example, exchange differences on translating foreign operations.  IAS1 (Revised 2007) affects the presentation of the owner changes in equity and introduces a "Statement of comprehensive income".  Further, a "Statement of changes in equity is now presented".

The adoption of IFRS 8 has not changed the segments that are disclosed in the financial statements.  In the previous annual and financial statements, segments were identified by reference to the dominant source and nature of the Group's risks and returns.  Under IFRS 8 the accounting policy for identifying segments is now based on internal management reporting information that is regularly reviewed by the chief operating decision maker.  These are the same for the Group.

The directors have reviewed forecasts for the coming year which have been drawn up with appropriate regard for the current macroeconomic environment and the particular circumstances in which the Group operates.  These were prepared with reference to historical and current industry knowledge, taking future growth into account.  These forecasts demonstrate that there is a need for the Company to seek further funding if it is to continue with its growth strategy and the Board has, therefore, announced that it is seeking to raise up to £3.5 million (before expenses) from a planned fundraising, to be achieved through a placing and open offer.

If this fundraising is not successful then the directors have identified a number of actions that they could take to conserve the Group's cash resources and generate funds.  These include the cessation of much of the Group's current growth and development activities, a significant reduction in central costs and seeking an orderly disposal of the Company's investments, as discussed in the Chairman's Statement.

The directors consider that the actions detailed above should generate sufficient cash to enable the Company and the Group to meet operational requirements whilst the Board pursues alternatives for realising shareholder value.  However, successful disposal of the Group's investments cannot be guaranteed nor can the swift liquidation of its working capital or the continuing growth of the RF Applications Division if it becomes more closely constrained in terms of cash.

The directors have concluded that the combination of these circumstances represents a material uncertainty that casts significant doubt over the company's ability to continue as a going concern and that, therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business.  Nevertheless, after making enquiries and considering the uncertainties described above, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and, accordingly, that it is appropriate to adopt the going concern basis in the preparation of the Company and the Group's financial statements.

As with all business forecasts, the directors' statement cannot guarantee that the going concern basis will remain appropriate given the inherent uncertainty about future events.

3. BASIS OF CONSOLIDATION

The Group's financial statements consolidate the results of the Company and all of its subsidiary undertakings drawn up to 31 December 2009. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. At 31 December 2009 the subsidiary undertakings were Stanelco RF Technologies Limited, InGel Technologies Limited, Adept Polymers Limited, Aquasol Limited, Stanelco Inc, Biotec Holding GmbH Group, Biotec Biologische Naturverpackungen GmbH & Co KG and Biotec Biologische Naturverpackungen Forschungs-und Entwicklungs GmbH.

The Group's shareholding in Biotec is 50 per cent. However until 31 December 2009, the Group was party to an agreement giving it a casting vote over all material decisions and so Biotec is accounted for as a subsidiary on the basis of control in the Group's financial statements for the year ended 31 December 2009. The casting vote expired on 31 December 2009 and from 1 January 2010 Biotec will cease to be fully consolidated.

The assets and liabilities of the Stanelco plc Employee Benefit Trust ("EBT") are included within the consolidated statement of financial position on the basis that the Group has the ability to exercise control over the EBT.

4a. SEGMENTAL INFORMATION FOR YEAR ENDED 31 DECEMBER 2009

			Bioplastics		RF Applications		Central Costs		Total
			2009		2009		2009		2009
			£'000		£'000		£'000		£'000
Revenue from external customers			16,590		1,321		-		17,911
(LOSS)/PROFIT FROM OPERATIONS			(799)		40		(1,844)		(2,603)
Investment revenue									33
Finance charges									(167)
Foreign exchange loss									(815)
LOSS BEFORE TAXATION									(3,552)
TOTAL ASSETS			24,601		1,299		3,186		29,086

4b. SEGMENTAL INFORMATION FOR YEAR ENDED 31 DECEMBER 2008

			Bioplastics		RF Applications		Central Costs		Total
			2008		2008		2008		2008
			£'000		£'000		£'000		£'000
Revenue from external customers			13,728		1,075		-		14,803
LOSS FROM OPERATIONS			(844)		(15)		(1,942)		(2,801)
Investment revenue									371
Finance charges									(242)
Foreign exchange loss									2,205
LOSS BEFORE TAXATION									(467)
TOTAL ASSETS			27,087		1,075		5,245		33,407

5. TAXATION

The Group's policy is to recognise tax credits resulting from tax R&D claims on a cash received basis. A claim was submitted in respect of the year ended 31 December 2008 and was settled during 2009. A tax credit has, therefore, been recognised in the Group's financial statements in respect of that claim.

6. EARNINGS PER SHARE

The calculation of earnings per share is based on the loss attributable to the equity holders of the parent for the year of £3,195,000 (2008: profit of £139,000) and a weighted average of 3,078,340,917 (2008: 3,049,093,286) ordinary shares in issue.

Basic and diluted earnings per share are equal in 2008 as all outstanding share options were out of the money for the purposes of the diluted earnings per share calculation.

7. GOODWILL

The decrease in goodwill since 31 December 2008 is due to the depreciation of the Euro during the reporting period. This increase will reverse should the Euro appreciate in future periods.

8. OTHER INTANGIBLE ASSETS

Other intangible assets increased in the year as a result of the capitalisation of £432,000 of product development costs. The amortisation charge for the period was £78,000.

9. PROPERTY, PLANT AND EQUIPMENT

There were no significant additions to property, plant and equipment during the reporting period. The decrease in property, plant and equipment in the reporting period reflected the depreciation of the Euro and the depreciation charge for the period.

10. PROMISSORY NOTES

Promissory notes are amounts due from members of Biotec Holding GmbH Group to the 50 per cent shareholder, SPhere. Amounts due represent the principal loans plus unpaid interest. Interest is calculated at one per cent per annum on the outstanding loans. The promissory notes are repayable on demand. On this basis the notes are included on the balance sheet at the face value which is equivalent to fair value. The promissory notes are not subject to interest rate risk as interest is fixed at 1% and are repayable on demand. During 2009 the depreciation of the Euro resulted in a loss of £618,000 in the value of the promissory notes.

11. CONTINGENT LIABILITIES

Novamont S.p.A's proceedings against Biotec Biologische Naturverpackungen GmbH & Co KG, Germany ("Biotec") remain ongoing.  The first court judgement in France has been received and is in favour of Biotec.   Biotec continues to defend the claims made by Novamont robustly and Stanelco and Biotec continue to take professional and technical advice with regard to this litigation, and are confident of a successful outcome.  Further details on this matter are set out in the Chief Executive's Statement.

12. POST BALANCE SHEET EVENTS

The Group's shareholding in Biotec is 50 per cent. However until 31 December 2009, the Group was party to an agreement giving it a casting vote over all material decisions and so Biotec was accounted for as a subsidiary on the basis of control in the Group's financial statements.  The casting vote expired on 31 December 2009 and from 1 January 2010 Biotec will cease to be fully consolidated.

The first court judgement on Novamont's proceedings against Biotec was received in France in April 2010 and was in favour of Biotec.  Further details on this matter are set out in the Chief Executive's Statement.

The Board has announced today that it is seeking to raise up to £3.5m (before expenses) from a planned fundraising, to be achieved through a placing and open offer of the Company's shares.  Further details on this matter are set out in the Chairman's Statement.

 

END

 

 

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