Preliminary Results

RNS Number : 9478A

Symphony Environmental Tech. PLC

27 March 2013

 



SYMPHONY ENVIRONMENTAL TECHNOLOGIES PLC

Preliminary Results for the year ended 31 December 2012

Symphony Environmental Technologies plc (the "Company" or "Group"), the specialist in advanced plastics technologies including controlled life, anti-microbial and anti-counterfeiting products, and recycling technologies, is pleased to announce its preliminary results for the year ended 31 December 2012.

Highlights

·      Revenues of £4.94 million (2011: £8.54 million)

·      Operating loss of £2.18 million (2011:  profit £0.50 million)

·      Loss before tax of £2.20 million (2011:  profit £0.42 million)

·      Loss after tax of £2.22 million (2011: profit £0.52 million)

·      Basic loss per share of 1.74p (2011: earnings per share 0.42p)

·      Cash generated from operations £0.45 million (2011: cash consumed £0.19 million)

·      Increase in number of distributors from 67 to 72

Post year-end

·      Revenues for January and February 2013 are 100% higher than same period in 2012

·      Legislation in UAE extended to cover 13 more products for oxo-biodegradable technology

·      Legislation in Pakistan makes oxo-biodegradable technology mandatory

·      Launch of SYM-Tyre S300

·      Directors increased share holding from 14.3% to 19.6%

Chairman's Statement

2012 was disappointing in terms of financial performance, but strong in terms of cash generation, and product and market development. There were delays in securing expected orders and the Group changed its trading polices in order to reduce foreign exchange and asset risks by improving the level of letter of credit or proforma based business. This led to a reduction in revenues for the year to £4.94 million (2011: £8.54 million) and a loss before tax of £2.20 million (2011: profit £0.42 million). The policies were however successful in contributing to the generation of £0.45 million of cash from operations (2011: cash consumed £0.19 million).

Underlying R & D  expenditure increased in line with identified opportunities. Together with d2w controlled life products and applications, we invested further into our d2p (anti-microbial and anti-fungal) and d2t (anti-counterfeiting) products. The Group employs a highly qualified scientific team with a presence in four continents. Full "in-house" development facilities became operational during 2012.

Our recycling division, Symphony Recycling Technologies, continued its investment in tyre recycling technologies. The Government-funded RuPERT project successfully concluded at the end of the year and we are investigating commercial opportunities going forward. Significantly, and separate to RuPERT, we launched in early 2013 the SYM-TYRE S-300 tyre "flat-pack" machine in order to generate initial revenues and to establish an early market presence.

The most significant aspect over the last twelve months was the increasing momentum of legislative change in favour of d2w oxo-biodegradable type products. The results of this are expected to show in 2013. Pakistan announced in February 2013 that is has legislated against plastic which is not oxo-biodegradable, and the United Arab Emirates extended its product range covered by similar legislation that came into effect in 2012. This extension to the product range adds items such as food packaging and stretch films to the carrier bags and refuse sacks that are currently being enforced.  Other countries are following their example.

Exciting opportunities have been developed for our d2p product range with end-user benefits relating to food and non-food sectors with potential cost savings being identified for the industry and the consumer. This is being marketed through our existing distribution network together with d2t, which we believe is a unique and valuable offering to users with a highly valued brand or to protect high value goods from unauthorised copying.

I am pleased to report that revenues for January and February 2013 are 100% higher than in the same period last year.

I would like to thank our distributors, staff and the Board for their hard work over the last year and we look forward to the future with confidence.

Contacts:

Symphony Environmental Technologies plc
Michael Laurier, CEO Ian Bristow, FD	Tel: [phone]
Cantor Fitzgerald Europe Stewart Dickson / Julian Erleigh (Corporate Finance) Katie Ratner (Corporate Broking)	Tel: [phone]

Chief Executive's Review

The year under review can be divided into two parts, the first being the financial, and the second the commercial. As to the first, a reduction in revenues together with a substantial trading loss was recorded. The cause for this exceptional result following a profit trend was a delay in expected sales from markets where we could see a process of legislative change, albeit not implemented, and a change in operating policies. The change in operating policies led to a significant reduction of receivables and also stocks held by the distributor network. This resulted in an improved working-capital cycle and a reduced exposure to credit risk. The cash generated from this strategy was £0.45 million, and this was re-invested into product research and development.

On the second part, the commercial, we achieved considerable success. The foundations were created to increase revenues and a move back into profitability during 2013. In the period, new products, new markets and new territories were identified and established. Laboratory trials for new products in our d2w, d2p and d2t technologies showed encouraging results which led to several lengthy commercial trials with end user corporations which are still ongoing.

The technical and marketing team were active throughout the year by focussing politicians and consumers' attention to the benefit of plastics with d2w inside. This activity was supported by the life-cycle-analysis that was commissioned by us and issued by Intertek in May 2012. We believe that the results of these actions will encourage countries to look at the d2w oxo-biodegradable option rather than ban or restrict the use of plastics altogether. Pakistan and the UAE have changed legislation in favour of our type of oxo-biodegradable technology, and others have also followed this course. The Symphony technical team has been active in many ways, and in particular, are committee members in most of the main standards organisations such as ASTM, BSI, and ISO. This strategy helps to ensure that our type of technologies are recognised and supported. Additionally we continue to extend our market reach and the global distribution network expanded to 72 (2011: 67) during 2012.

The Symphony Recycling division also made some positive steps forward and continues to develop its recycling technologies. The RuPERT project was successfully completed in December 2012.

Operationally, the following was achieved during 2012:

·      Accreditation to ISO14001.

·      Opening of our development facility in Telford, UK.

·      Launch of our d2p anti-fungal technologies at the International Bakery show (IBA2012) in Munich following successful laboratory trials

·      Launch of our d2t anti-counterfeiting technologies.

Trading results

Total Group revenues were lower at £4.94 million (2011: £8.54 million). Group gross profit margins reduced from 54% to 44%. These factors resulted in a 53% decrease in the contribution from gross profit from £4.59 million in 2011 to £2.15 million in 2012. Gross margins were reduced due to the sales mix leaning towards the lower value areas while the higher value regions reduced their local stock levels.

Sales to the Americas reduced from £4.62 million in 2011 to £2.11 million in 2012 and represented 43% of 2012 revenues (2011: 54%). This was the main area where stocks and receivables were high at the end of 2011 and so suffered as a result of the change in operating policies.  Our primary markets in this sector are Mexico and Brazil.

Sales to UK and Europe reduced from £1.97 million in 2011 to £1.38 million in 2012 and represented 28% of 2012 revenues (2011 23%). This includes sales to Italy which was strong in 2011 but confused packaging legislation in the country led to reduced volumes in 2012.

Sales to the Rest of the World reduced from £1.95 million in 2011 to £1.45 million in 2012 and represented 29% of 2012 revenues (2011: 23%). Territories include the UAE which also had high stocks at the end of 2011.

Total expenses increased to £4.21 million (2011: £3.90 million) which included provisions against receivables of £0.39 million (2011: £nil). Total staff costs were marginally higher at £2.16 million (2011: £2.02 million) and Directors' emoluments reduced to £0.87 million in 2012 from £0.89 million in 2011.

The Group made an operating loss of £2.18 million compared with an operating profit of £0.50 million in 2011, resulting in the Group's loss before tax of £2.20 million compared with a profit before tax of £0.42 million in 2011. 

Development costs of £0.36 million were capitalised in 2012 (2011: £0.24 million). The net book value of capitalised development costs at the end of the year amounted to £1.31 million. Further development expenditure of £0.32 million (2011: £0.34 million) was charged directly to profit and loss. Capitalised development costs represent 9% of expenses as detailed above. Within the total amount of £1.31 million capitalised to date are: £0.48 million relating to Symphony Recycling Technologies; £0.25 million relating to d₂w products which have been developed and are being sold; and the balance of £0.58 million, relating to further environmental plastic applications still in development, and where we believe significant revenues will be generated in the foreseeable future.

The Group reports a loss for the year of £2.22 million with basic loss per share of 1.74 pence (2011: earnings per share 0.42 pence).  

The Group's primary selling currency is the US Dollar. The Group hedges where possible by purchasing in US Dollars and has banking facilities in place in order to secure rates going forward. As at 31 December 2012 the Group had a net balance of US Dollar assets totalling $0.32 million (2011: $5.14 million).

Segmental analysis

The Group operates two divisions which are classified as segments in the financial report, being the Plastics division and the Recycling Technologies division. 

The Plastics division includes revenues associated with d₂w, d₂p and d2Detector, be they additives or finished products. The Plastics division, which currently makes up all Group revenues, saw d₂w additive volumes decrease by 40% during the year with d₂w revenues reducing to £4.94 million (2011: £8.54 million) due to delays in expected orders and changes in operating polices as stated above.  This, together with the fall in gross margins and increased administrative expenses, resulted in an EBITDA loss of £1.75 million in 2012 compared to a profit of £0.86 million in 2011.

The Recycling Technologies division has no revenues to date and saw expenditure of £0.27 million for the year resulting in an EBITDA loss of the same amount (2011 expenditure and EBITDA loss: £0.22 million).

Cashflow

The Group generated £0.45 million from operations (2011: cash consumed £0.19 million).  This was due to a change in operating policies which led to stricter stock and receivables controls within the distribution network. The Group has a £1 million trade finance facility with HSBC Bank plc which was  drawn down to £0.22 million as at 31 December 2012 (drawn down to £0.38 million at 31 December 2011) which is used to manage Group working capital.

In addition to development costs detailed above, £0.04 million was invested in plant and equipment, representing continued investment in a development centre in Telford, UK, together with other laboratory equipment and facilities. A total of £0.06 million was spent on property, plant and equipment in 2012 (2011: £0.28 million).

Symphony Recycling Technologies

The RuPERT tyre recycling project was successfully completed in December 2012. The Group continues to invest in and is actively pursuing commercial outlets. In early 2013 we launched the SYM-TYRE S-300 tyre reduction machine. We anticipate that this will generate revenues in the short term, and also open the way for commercialisation of future developments as and when they come on stream.

Outlook

2013 has started strongly with sales showing a 100% improvement from the same period last year. Our main established markets are reporting tight stock levels and steady to increasing sales momentum. The new markets for d2w have provided encouraging sales projections and marketing activity information. They have also started placing orders.

The Pakistan legislation prohibiting plastics which are not oxo-biodegradable comes into effect in April 2013. This follows similar legislation previously passed in the United Arab Emirates and recently extended from 2 products to 15. These changes to legislation are expected to be significant, not only in terms of the local markets, which are material, but also for imported items which are packed in plastics. Other countries have either legislated in a similar way or are contemplating what action should be taken.

As an example, Italy has draft legislation for a hydro-biodegradable product that conforms with the composting standard EN 13432. However, this draft decree itself says that it is "subject to the information procedure under Directive 98/34/EC and shall enter into force from the date of completion, with a favourable outcome, of the procedure itself, the date of which shall be announced in the Official Gazette." It is our view that it is unlikely that there will be a favourable outcome.  The European Commission sent on 24 October 2012 a formal notice to the Italian Republic, in the framework of infringement procedure 2011/4030. The European Commission have confirmed that Italy is in breach not only Article 16 of Directive 94/62/EC and Article 8 of Directive 98/34/EC, but also Article 18 of Directive 94/62/EC. Italy continues to use a d2w type oxo-biodegradable products but in low volumes at this point in time.

France is preparing law favourable to oxo-biodegradable products for retail plastic bags which would come into force January 2014. Other European countries are also considering legislation.

As a result of growing global activity, we believe the legislation momentum for d2w type oxo-biodegradable technologies will increase, and we are finding more and more customers wanting to use the d2w brand as an answer to meet legislation requirements or just good CSR or marketing practice. We offer a free d2detector testing service which is a unique and not provided by others in the industry.

The United States Federal Trade Commission recently issued a statement which questioned the validity of hydro-biodegradable plastics (i.e. those made from food crop), such that they were not suitable for composting; this being the primary reason why hydro-biodegradable products are sold.

In May 2012, Intertek published a life cycle assessment which showed that d2w oxo-biodegradable plastics are 75% better than normal plastic when it comes to litter. In respect to litter, Keep America Beautiful issued a report where it concluded that "litter remains a pervasive problem". Oxo-biodegradables are designed primarily to deal with littering.

All in all, the above shows an increasingly aware global market which is leaning towards d2w type oxo-biodegradable products.

Complementing d2w, we believe that our d2detector will be an important tool for users of this type of technology as the consumer has no other means of identifying if a product really has d2w inside or not as it is invisible to the human eye. The d2p anti-microbial and anti-microbial technologies will also have an impact in 2013 and we are currently in discussions with a number of blue-chip companies regarding the commercial use in their products. There are also similar situations with our d2t anti-counterfeiting technologies.

With the improved trading position at the start of 2013, the Group is confident of a stronger financial performance going forward, and are encouraged by the growing positive sentiment towards our products and technologies.

Michael Laurier 

Chief Executive

Consolidated statement of comprehensive income

for the year ended 31 December 2012

		2012		2011
	Note		£'000		£'000
Revenue			4,938		8,542
Cost of sales			(2,785)		(3,956)
Gross profit			2,153		4,586
Distribution costs			(125)		(180)
Administrative expenses			(4,211)		(3,902)
Operating (loss)/profit			(2,183)		504
Finance income			6		2
Finance costs			(20)		(90)
(Loss)/profit for the year before tax			(2,197)		416
Taxation			(27)		104
(Loss)/profit for the year			(2,224)		520
Total comprehensive income for the year			(2,224)		520
Basic (loss)/earnings per share	3		(1.74)p		0.42p
Diluted (loss)/earnings per share	3		(1.74)p		0.37p

All results are attributable to the parent Company equity holders. There were no discontinued operations for either of the above periods.

Consolidated statement of financial position

as at 31 December 2012

Company number 3676824

		2012	2011
		£'000	£'000
Assets
Non-current
Property, plant and equipment		499	586
Intangible assets		1,334	1,002
Deferred income tax asset		1,216	1,277
Available-for-sale financial assets		-	15
		3,049	2,880
Current
Inventories		637	399
Trade and other receivables		806	3,782
Cash at bank and in hand		336	291
		1,779	4,472
Total assets		4,828	7,352
Equity
Equity attributable to shareholders of Symphony Environmental Technologies plc
Ordinary shares		1,280	1,278
Share premium		1,648	1,646
Retained earnings		205	2,412
Total equity		3,133	5,336
Liabilities
Non-current
Interest bearing loans and borrowings		20	31
		20	31
Current
Interest bearing loans and borrowings		509	518
Trade and other payables		1,166	1,467
		1,675	1,985
Total liabilities		1,695	2,016
Total equity and liabilities		4,828	7,352

Consolidated statement of changes in equity

Equity attributable to the equity holders of Symphony Environmental Technologies plc:

	Share capital	Share premium	Retained earnings	Total equity
	£'000	£'000	£'000	£'000
For the year to 31 December 2012
Balance at 1 January 2012	1,278	1,646	2,412	5,336
Issue of share capital	2	2	-	4
Share-based options	-	-	17	17
Transactions with owners	2	2	17	21
Loss and total comprehensive income for the year	-	-	(2,224)	(2,224)
Balance at 31 December 2012	1,280	1,648	205	3,133
For the year to 31 December 2011
Balance at 1 January 2011	1,173	17	1,863	3,053
Issue of share capital	105	1,629	-	1,734
Share-based options	-	-	29	29
Transactions with owners	105	1,629	29	1,763
Profit and total comprehensive income for the year	-	-	520	520
Balance at 31 December 2011	1,278	1,646	2,412	5,336

Consolidated cash flow statement

for the year ended 31 December 2012

	Note	2012	2011
		£'000	£'000
Operating activities
Net cash generated/(used) from operations	4	414	(194)
Tax received		34	7
Net cash generated/(used) from operating activities		448	(187)
Investing activities
Additions to property, plant and equipment		(59)	(280)
Proceeds from disposals of property, plant and equipment		14	44
Additions to intangible assets		(361)	(247)
Net cash used in investing activities		(406)	(483)
Financing activities
Repayment of loans		-	(750)
Movement in working capital facility		(163)	327
New finance leases		-	4
Discharge of finance lease liability		(25)	(14)
Proceeds from share issue		4	1,734
Interest paid		(20)	(90)
Net cash (used)/generated in financial activities		(204)	1,211
Net change in cash and cash equivalents		(162)	541
Cash and cash equivalents, beginning of year		180	(361)
Exchange gain/(loss)		39	-
Cash and cash equivalents, end of year		57	180

The reconciliation to the cash and cash equivalents as reported in the statement of financial position is as follows:

		2012 £'000	2011 £'000
Loans and receivables:
Cash at bank and in hand		336	291
Financial liabilities measured at amortised cost:
Bank overdraft		(279)	(111)
Cash and cash equivalents, end of year		57	180

Notes to the Preliminary Statement

1              Basis of preparation

This preliminary statement has been prepared on the basis of accounting policies consistent with the audited financial statements for the year ended 31 December 2012.

The financial information set out in this report does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011 but is derived from the 2012 accounts.  Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered in due course.  The auditor has reported on those accounts; its report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.

2              Segmental information

Management currently identifies the group's two service lines as operating segments, "Plastics" and "Recycling Technologies (Recycling Tech)". The Plastics service line includes all activities in relation to the sale of plastic products and their associated items. This includes the sale of plastic degradable additives, finished goods, non-degradable products and d2detectors. The Recycling Technologies segment includes all activities involved in the development of tyre and rubber recycling systems.

The segmental results for the year ended 31 December 2012 are as follows:

Operating segments		Plastics	Recycling Tech.	Group
Twelve months to 31 December 2012		£'000	£'000	£'000
Segment revenues		4,938	-	4,938
Share-based payments		(17)	-	(17)
Apportioned costs		(6,671)	(272)	(6,943)
EBITDA		(1,750)	(272)	(2,022)
Depreciation and amortisation		(161)	-	(161)
Interest		(14)	-	(14)
Taxation		(27)	-	(27)
Loss for the year		(1,952)	(272)	(2,224)

The segmental results for the year ended 31 December 2011 are as follows:

Operating segments		Plastics	Recycling Tech.	Group
Twelve months to 31 December 2011		£'000	£'000	£'000
Segment revenues		8,542	-	8,542
Share-based payments		(29)	-	(29)
Apportioned costs		(7,649)	(222)	(7,871)
EBITDA		864	(222)	642
Depreciation and amortisation		(138)	-	(138)
Interest		(88)	-	(88)
Taxation		104	-	104
Profit/(loss) for the year		742	(222)	520

Revenues stated are from external customers.

There were no inter-segment revenues for the above periods.

3          (Loss)/earnings per share and dividends

The calculation of basic earnings per share is based on the (loss)/profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options and warrants.

Reconciliations of the (loss)/profit and weighted average numbers of shares used in the calculations are set out below:

Basic and diluted		2012	2011
(Loss)/profit attributable to equity holders of the Company		£(2,224,000)	£520,000
Weighted average number of ordinary shares in issue		127,907,254	123,853,985
Basic (loss)/earnings per share		(1.74) pence	0.42 pence
Dilutive effect of weighted average options		-	15,441,979
Total of weighted average shares together with dilutive effect of weighted options		127,907,954	139,295,964
Diluted (loss)/earnings per share		(1.74) pence	0.37 pence

No dividends were paid for the year ended 31 December 2012 (2011: £nil).

The effect of options in 2012 are anti-dilutive.

4              Net cash generated/(used) from operations

			2012 £'000	2011 £'000
(Loss)/profit after tax			(2,224)	520
Adjustments for:
Depreciation			132	109
Amortisation			29	29
Loss on disposal			-	2
Share-based payments			17	29
Impairment of financial asset			16	-
Tax charge/(credit)			27	(104)
Interest expense			20	90
Changes in working capital:
Inventories			(238)	(118)
Trade and other receivables			2,936	(853)
Trade and other payables			(301)	102
Cash generated/(used) from operations			414	(194)

5          Availability of report and accounts

The Company will advise when copies of the Annual Report and Accounts will be sent to shareholders and be available from the Company's website www.d2w.net

NOTES TO EDITORS:

About Symphony Environmental Technologies plc

SYMPHONY ENVIRONMENTAL TECHNOLOGIES PLC is a specialist in controlled-life plastic technology and products - a system that works by a process called oxo-biodegradation. The technology is branded d2w® and appears as a droplet logo on many thousands of tonnes of plastic packaging and other plastic products around the world.

Symphony's d2w® technology turns plastic at the end of its service-life into a material with a completely different molecular structure.  At that stage it is no longer a plastic and can be bioassimilated in the open environment in the same way as a leaf.  For a video of d2w® plastic degrading see http://degradable.net/play-videos/4

Symphony also supplies d2p technology that can be used in most types of plastic products to help reduce the risk of contamination by harmful bacteria and fungi. In addition Symphony has developed d2Detector, a portable device which analyses plastics and detects counterfeit products, together with tagging and tracer technology for further security. 

Symphony has a diverse and growing customer-base and has established itself successfully as an international business with 72 distributors around the world. Products made with d2w® plastic technology can now be found in 96 countries and in many different product applications.

Symphony is a member of The British Plastics Federation (BPF), the Oxo-biodegradable Plastics Association (www.biodeg.org), and the Society for the Chemical Industry (UK). Symphony is also a member of the Pacific Basin Environmental Council, Symphony actively participates in the Committee work of the British Standards Institute (BSI), the American Standards Organisation (ASTM), the European Standards Organisation (CEN), and the International Standards Organisation (ISO).

Symphony is also developing innovative and cost-effective anti-counterfeiting, and recycling systems to convert scrap tyres and other waste-streams into valuable products.

Symphony is accredited to ISO9001 and ISO14001. Further information on the Symphony Group can be found at www.d2w.net.

 

END

 

 

FR EAXDKAAPDEFF