Final Results

RNS Number : 5211D

TEG Group (The) PLC

31 March 2014

 

For release

07:00

31 March 2014

The TEG GROUP PLC (AIM: TEG)

("TEG" or "the Group")

PRELIMINARY RESULTS

The TEG Group PLC, the AIM listed green technology company, which develops and operates organic composting and energy plants, announces its preliminary results for the year ended 31 December 2013

Highlights

Financial

·      Full year revenue for 2013 was £19,554,000 (2012: £22,418,000).

·      Gross profit of £3,380,000 (2012 £4,614,000).

·      Group loss after tax was £2,502,000 (2012: £1,037,000).

·      No dividend is recommended.

Operations

·      The £16m flagship Dagenham IVC  & AD facility underwent final commissioning and testing during the year and, post period end, the facility was successfully handed over to the client, TEG Biogas (London) Limited, on programme and on budget.  TEG has since commenced a 15-year operating and maintenance contract generating £1.3m per annum in revenues and will retain 24.5% ownership of the facility

·      Performance of the Perth AD facility continued to be excellent with power output in excess of 5 million KWh during 2013 and currently ahead of design capacity

·      TEG's wholly-owned plant operations performed impressively with substantially increased productivity and utilisation seen over period with strongly improved margins - the Group passed the one million tonne mark for organic waste recycling during period

·      Expansion works were successfully completed at the Group's Todmorden and Telford facilities to accommodate increases in demand from customers, with capacity increased by 95% and 50% respectively

·      Construction of the fourth and final facility (Bolton), as part of the Greater Manchester Waste PFI Contract, was completed in Q4 2013 and achieved Takeover - the other 3 facilities all successfully passed their 52-week Availability Tests - discussions regarding release of final retentions continue 

Strategic activities

·      Offer of funding received for next project, at TEG's site in Gaydon, Warwickshire with financial close expected during Q2 2014.  Gaydon would be of a similar size and scope to the Dagenham facility.

·      The Group continues to investigate further similar investments and potential funders re other projects in the pipeline, including the development of existing Group assets and facilities

Board Structure

·      Leo McKenna appointed to succeed Rory Maw as TEG Chairman, effective from 01/04/14.

·      Tanja Willis, Group Finance Director is to remain in post.

Commenting, Rory Maw, Non-Executive Chairman, TEG Group Plc, said:

"TEG's plant operations performed strongly throughout the year, with increased productivity, utilisation and the expansion of a number of facilities, allied to continued growth in the organics sector of the waste market.  The Group also successfully completed the Dagenham project, London's first combined IVC and AD plant, securing handover on target shortly after the period end.

As we had advised previously, exceptional provisions and the delay in reaching financial close on the Gaydon project have regrettably led to a disappointing financial performance in the second half of the year.  Our operations have, however, had an excellent start to 2014 and I believe the Group remains well placed to take advantage of its expanding market.  The Board is excited by potential new opportunities in the pipeline and overall we expect a strong operational performance in 2014.

It is a very great pleasure to welcome Leo McKenna to the Board as your next Chairman and I wish him, the staff of TEG and the Company all success and good fortune in the future." 

- ENDS -

Contact:
The TEG Group Plc	Tel: [phone]
Michael Fishwick, Chief Executive	www.theteggroup.plc.uk
Peckwater PR	Tel: [phone]
Tarquin Edwards	[e-mail]
N+1 Singer Advisory LLP (Nomad & Broker)	Tel: [phone]
Andrew Craig/Ben Wright

Notes to Editors

TEG

TEG provides state of the art technology for handling organic wastes.  Its in-vessel composting ("IVC") system is one of the few approved technologies capable of treating animal by-product ("ABP") waste and it is now providing an anaerobic digestion ("AD") technology to produce power from food waste.  Plant economics are predominantly driven by the gate fees charged, rather than the value of the end product (compost).  

The AD plants also benefit from power sales and Renewable Obligations Certificates ("ROCS") or Feed-in Tariffs ("FITs"). The TEG processes are an economic and sustainable alternative to landfill.

The TEG Silo Cage System

The Silo Cage system, one of the few technologies capable of treating organic waste, is a natural process producing compost as an end product.  The compost is an excellent soil conditioner that fertilises, retains moisture, provides structure and reduces the incidence of plant disease.  TEG's Silo-Cages are housed in self-contained buildings, suitable for urban environments, are not unsightly and are environmentally friendly.

TEG Biogas (Perth) Limited

TEG Biogas (Perth) Limited ("TEG Biogas Perth") is a joint venture company established by TEG with Albion LLP.  TEG Biogas Perth has constructed a 15,000 tonnes per annum AD plant at TEG's Glenfarg site to produce nominally 0.7MW of electrical power and 0.2MW of heat that is to be used by Binn Eco Park.  The facility has been in operation, generating revenues from waste sales and power generation since Quarter 1 of 2012.  It has become one of the leading AD operations in Scotland.

TEG Biogas (London) Limited (TEGBL)

TEG Biogas (London) Limited ("TEG Biogas London") is a joint venture company established by TEG with funding partners led by Foresight Environmental Fund LP.  TEG Biogas London has constructed a combined In Vessel Composting (IVC) and Anaerobic Digestion (AD) plant in Dagenham that will process approximately 50,000 tonnes per annum of organic wastes and will generate approximately 1.4MW of power, sufficient to power approximately 2000 homes.   The plant went into full operation in Q1 2014. 

TEG received a contract to construct the facility, valued at approximately £16m, in September 2012.  The Company is currently operating the facility, post handover, as part of a 15-year operating and maintenance contract.  The Group has a 24.5% shareholding in TEGBL.

General

Customers include local authorities, waste management companies, food processing companies, farmers and landowners.  The Company's expanding market is driven by increasingly stringent EU and UK legislation regulating the treatment and disposal of organic waste.  Statutory targets for the diversion of waste from landfill increase annually through to 2020, increasing TEG's market opportunity year on year.

Chairman’s statement

I am pleased to present the Group's preliminary results for the year ended 31 December 2013.  This is my last set of results before I step down as Chairman and, although results for the second half of the year were clearly disappointing, the business has made significant progress in recent months and has started 2014 positively. 

Full year revenue for 2013 was £19,554,000 (2012: £22,418,000) and the Group loss was £2,502,000 (2012: £1,037,000).  The Group recorded a gross profit of £3,380,000 (2012 £4,614,000).  No dividend is recommended.

In line with expectations, the Group cash balance as at 31 December 2013 was £676,000 (2012: £3,674,000).  This was prior to the post year end completion of the Dagenham facility following which the Group received its final retention of £1.5m.

Group Plant Operations

Revenues and profit margins at the Group's own plant operations have continued to grow impressively in 2013.  This reflects continuous improvement in productivity and utilisation from TEG's operating facilities and the continuous growth in the organics sector of the waste market.

Operational revenues grew by 3.5% in 2013 compared to 2012, with a 6.8% increase in gross margin.  The volume of waste fell by approximately 5% but overall average gate fees increased by 10%.   

During the year, expansion works were successfully completed at the Group's Todmorden and Telford facilities to accommodate increases in demand from customers increasing capacity by 95% and 50% respectively.

Perth AD Facility (TEG Biogas (Perth) Limited)

The Company's move into the renewable energy sector continues to proceed well.  The performance of the Perth AD facility was excellent with power output currently ahead of design capacity.  The plant processes approximately 15,000 tonnes per annum of food waste and generates approximately 0.7MW of electricity and 0.2 MW of heat, to be utilised on site in the Binn Eco Park development.  In 2013 the facility generated in excess of 5 million KWh of power.  The facility benefits from Renewable Obligation Certificates ("ROCs") and as an AD facility it receives double ROCs (i.e. 2 ROCs for each unit of electrical output).  The project is funded by Albion Ventures LLP ("Albion") and the Group retains a 50% shareholding in TEG Biogas (Perth) Limited. 

Group EPC contracts

The EPC contracts revenue decreased during the year reflecting a drop off in activity following the end of the Manchester contract and the delays in completing financing of the Gaydon project.  Given the fixed level of overhead required for future build projects and to resolve the Manchester contract, the overall gross profitability for the EPC contracts in 2013 was reduced. 

Dagenham Project

In TEG's Projects division, construction of the Dagenham combined In Vessel Composting ("IVC") and AD plant continued to proceed smoothly and the plant successfully underwent its planned commissioning and testing process.  Post period end, we were delighted to announce on 6^th  March 2014 that the facility had passed its performance tests and was handed over to the client, TEG Biogas (London) Limited to programme and budget.  TEG has now commenced the 15-year operating and maintenance contract, generating £1.3m per annum in revenues, and will retain 24.5% ownership of the facility.  The project is funded by a consortium of funders, led by Foresight Environmental Fund LP and the UK Green Investment Fund.

Greater Manchester Waste PFI Contract

Construction of the fourth and final facility (Bolton) was completed in Quarter 4 of 2013 and the plant achieved Takeover.  Furthermore, during the period the other three facilities all successfully passed their 52-week Availability Tests.

Progress continues to be made in respect to resolving outstanding issues on the wider contract and all parties are working together to implement practical solutions.  No further retentions had been received by the year end though the Board expects that progress will be made in releasing retentions during 2014.

Strategic Activities

Following the success with the Dagenham project, the Group has received an offer of funding for its next project, at its site in Gaydon, Warwickshire.  It is intended that this will be a similar facility to that constructed in Dagenham and the Group expects to reach financial close during Quarter 2 of 2014, with construction expected to complete by Quarter 2 of 2015.  The commercial structure of this project is expected to be similar to Dagenham with the Group undertaking an Engineering, Procurement and Construction (EPC) contract followed by a long-term Operating and Maintenance (O&M) contract and retaining a minority shareholding in the new facility.

Furthermore, the Group continues to investigate further similar investments at the operating company and project level and is in discussion with potential funders over other projects in the pipeline. These projects include development of existing Group assets and facilities.

Market Update

The fundamental drivers remain in place for continued market growth as obligations increase on waste producers to divert organic waste from landfill.  These statutory obligations increase annually and are expected to increase continuously until 2020.  Landfill Tax ("LFT") will rise by £8.00 per tonne in April 2014, increasing the tax to a total of £80.00 per tonne.  In addition, the Scottish Assembly has passed legislation to progressively introduce a complete ban on the landfill of organic waste in both the public and private sectors from 2014. 

The Board is pleased to report that significant interest in IVC continues, often alongside AD.  Local Authority costs are often reduced by the collection of green and food wastes together, and this waste stream is better suited to IVC.  Whilst the Board can also report a continued market interest in energy generation from food waste and the strengthening of interest in technologies such as AD, this technology still relies upon Government subsidy in the form of either ROCs or FITs.  The level of subsidy available remains under review by Government and may be reduced for future schemes, though to date the Board is pleased that the impact on the type of project pursued by the Group has largely been beneficial. 

The wider regulatory environment continues to benefit the Group, as its technology lends itself to the additional level of containment required by the regulators, which is now being enforced generally.  In addition, the regulators have introduced policies to reduce the level of low-grade green waste disposal.  In time, this is expected to increase the volume of green waste diverted into the composting sector.  This reinforces the Board's view that its IVC technology continues to add strategic value. 

Board Structure

As announced earlier today, I will be stepping down as Chairman and I am delighted that the Board has appointed Leo McKenna as my successor and I wish Leo well in what promises to be an exciting period in the development of the Group.

Bridges Ventures intends to appoint a new representative as a Non-Executive Director on the Board and further information will be provided in due course.

Furthermore, I am delighted to report that the Board has persuaded Tanja Willis, Group Finance Director, to remain in post and I am very pleased we have been able to ensure the stability and continuity of the team.

Future Prospects

The successful completion of the Dagenham project in the first Quarter of 2014 was a significant milestone for the Group.  We believe this has further demonstrated the capabilities of the Group to deliver projects to time and budget, in addition to releasing a significant cash payment from the release of the retention. 

The provision made for a number of one-off administrative charges, including some costs associated with the shareholder loan announced on 30 September 2013, together with the delay in closing the Gaydon project, and corresponding delay in revenues, resulted in a disappointing second half to 2013.  However, the Board is confident financial close will be achieved on its Gaydon project and TEG maintains a strong pipeline of project opportunities.  TEG's own facilities continue to perform well and the performance of both of the Perth and Dagenham AD facilities is highly encouraging.  The Board expects tougher trading conditions for the Operations division in 2014 due to competitive pressures in some regions.  However, the Group remains well placed to continue to take advantage of the expanding market, the Board is excited by potential new opportunities in the operational pipeline and overall the Board expects another strong operational performance in 2014.  The Board is confident that the Group has an exciting future with a promising outlook.

R Maw

Chairman

31 March 2014

Consolidated statement of financial position
At 31 December 2013

		Before exceptional costs	Exceptional costs	Total	Total
		2013	2013	2013	2012
	Note	£'000	£'000	£'000	£'000
Continuing operations
Revenue	2	19,554	-	19,554	22,418
Cost of sales		(16,174)	-	(16,174)	(17,804)
Gross profit		3,380	-	3,380	4,614
Administrative expenses - other		(5,092)	(467)	(5,559)	(5,487)
Amortisation of intangible assets		(304)	-	(304)	(304)
Total administrative expenses		(5,396)	(467)	(5,863)	(5,791)
Operating loss from continuing operations		(2,016)	(467)	(2,483)	(1,177)
Finance income		80	-	80	70
Finance costs		(275)	-	(275)	(172)
Loss before tax		(2,211)	(467)	(2,678)	(1,279)
Income tax	4	176	-	176	242
Loss and total comprehensive income for the year		(2,035)	(467)	(2,502)	(1,037)
Attributable to:
Equity holders of the parent
Retained loss		(2,035)	(467)	(2,502)	(1,037)
Loss per share
Basic and diluted loss per share (pence)	5	(1.08)	(0.25)	(1.32)	(0.70)

Consolidated statement of financial position

At 31 December 2013

		2013	2012
		£'000	£'000
ASSETS
Non-current assets
Goodwill		3,883	3,883
Intangible assets		647	951
Property, plant and equipment		15,110	15,453
Trade and other receivables		1,251	1,594
		20,891	21,881
Current assets
Inventories		251	232
Trade and other receivables		7,822	9,353
Taxation receivable		94	102
Cash and cash equivalents		676	3,674
		8,843	13,361
Total assets		29,734	35,242
LIABILITIES
Current liabilities
Trade and other payables		4,775	9,239
Current portion of long-term borrowings		304	385
Current portion of deferred consideration		276	265
Provisions		445	453
		5,800	10,342
Non-current liabilities
Long-term borrowings		3,697	1,791
Long-term deferred consideration		140	418
Deferred tax		225	307
Provisions		-	10
		4,062	2,526
Total liabilities		9,862	12,868
Net assets		19,872	22,374
EQUITY
Equity attributable to equity holders of the parent
Share capital		6,582	6,582
Share premium account		39,214	39,214
Merger relief reserve		886	886
Other reserve		1,082	1,082
Retained losses		(27,892)	(25,390)
Total equity		19,872	22,374

Consolidated statement of changes in equity

for the year ended 31 December 2013

	Share capital	Merger relief reserve	Share premium account	Other reserve	Retained  losses	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2012	5,872	886	38,045	1,061	(24,353)	21,511
Issue of share capital	710	-	-	-	-	710
Premium on issue of share capital	-	-	1,419	-	-	1,419
Issue costs	-	-	(250)	-	-	(250)
Recognition of share-based payments	-	-	-	21	-	21
Transactions with owners	710	-	1,169	21	-	1,900
Loss for the financial year and total comprehensive income	-	-	-	-	(1,037)	(1,037)
Balance at 1 January 2013	6,582	886	39,214	1,082	(25,390)	22,374
Loss for the financial year and total comprehensive income	-	-	-	-	(2,502)	(2,502)
Balance at 31 December 2013	6,582	886	39,214	1,082	(27,892)	19,872

Consolidated statement of cash flows

For the year ended 31 December 2013

		2013	2012
		£'000	£'000
Cash flows from operating activities
Loss after taxation		(2,502)	(1,037)
Adjustments for:
Depreciation		1,325	1,318
Amortisation of intangibles		304	304
Share-based payment administrative expense		-	21
Taxation credit recognised in consolidated statement of comprehensive income		(176)	(242)
Interest expense		275	172
Interest income		(80)	(70)
(Profit) / loss on sale of property, plant and equipment		(36)	366
Decrease / (increase) in trade and other receivables		1,874	(2,618)
(Increase) / decrease in inventories		(19)	323
(Decrease) / increase  in trade payables		(4,500)	2,762
Increase in provisions for other liabilities		18	148
Cash (used in) / from operations		(3,517)	1,447
Interest paid		(153)	(126)
Income taxes  received		102	166
Net cash (used in) / from operating activities		(3,568)	1,487
Cash flows from investing activities
Acquisition of business - deferred consideration		(300)	(300)
Purchase of property, plant and equipment		(1,037)	(716)
Proceeds from sale of property, plant and equipment		91	46
Interest received		80	70
Net cash used in investing activities		(1,166)	(900)
Cash flows from financing activities
Proceeds from issue of share capital		-	1,879
Proceeds from issue of loan notes		2,073	-
Repayment of loan		(148)	(78)
Payment of finance lease liabilities		(189)	(271)
Net cash from financing activities		1,736	1,530
Net (decrease) / increase in cash and cash equivalents		(2,998)	2,117
Cash and cash equivalents at beginning of the year		3,674	1,557
Cash and cash equivalents at end of the year		676	3,674

1.     Basis of preparation

The financial information set out in this announcement does not constitute the statutory accounts of the Group for the year ended 31 December 2013.  The auditors reported on those accounts; their report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2013 will be delivered to the registrar of Companies following the Company's Annual General Meeting.

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement in itself does not contain sufficient information to comply with IFRS.  Details of the accounting policies are those set out in the annual report for the year ended 31 December 2012.  These accounting policies have remained unchanged for the financial year ended 31 December 2013.

Going concern

In forming their views, the Directors have prepared cash flow forecasts for a 12 month period following the date of approval.  As part of the preparation of these forecasts, the Directors have considered the overall financial market at this time, the challenges experienced in obtaining timely project funding and the impact such delays have on the cash flow position of the Group.  The Directors have estimated the likely conversion of potential future contracts, the likely timetable for release of the retentions and release of other sums due in respect of the Manchester contracts, the likely working capital requirements to complete the improvement works on these contracts,  the general working capital required and the likely funding available to execute contracts.  Furthermore, the Directors have considered the requirement at the end of Quarter 2 of 2015 to repay the shareholder loan announced on 30 September 2013.  Given these considerations, the Directors have adopted a prudent funding policy with regards to forecasts over the period.

After reviewing the forecasts, the Directors have a reasonable expectation that planned projects will be financed in a reasonable period of time, that the various sums due are likely to be received in the period, and on that basis the Company and Group have adequate resources to maintain operations over the 12 month period.  For this reason they continue to adopt the going concern basis in preparing the financial statements. 

2.     Revenue

All revenue reported in the period under review arose within the United Kingdom.  An analysis of the Group's revenue for the year (excluding finance income) is as follows:

	2013 £'000	2012 £'000
Revenue from Plant Operations	10,692	10,204
Rendering of services	10,692	10,204
Revenue from EPC Construction Contracts	8,792	12,037
Revenue from Plant Operations	70	177
Sale of goods	8,862	12,214
Total revenue	19,554	22,418

3.     Operating segments

For management purposes, the Group is organised into the following operating segments: Plant Operations and EPC Contracts.

All revenues from external customers and non-current assets are attributable to, and located in, Great Britain.

In identifying its operating segments, management follows the Group's service lines which represent the main products and services provided by the Group.  These operating segments are monitored and strategic decisions are made on the basis of segment operating results.

The EPC Contracts segment includes IVC and AD sales to third parties including the design, production and installation of plants for sale to third party clients.  The Plant Operations segment relates to facilities which are owned and operated by the Group.  These sites process waste received from customers and manage the compost produced by the facilities.  The Plant Operations segment is also responsible for the maintenance and operating contracts carried out for third parties.  The revenues and net result generated by each of the Group's operating segments are summarised as follows:

2013

	Plant Operations	EPC contracts	Other corporate expenses	Consolidated
	£'000	£'000	£'000	£'000
External revenue	10,762	8,792	-	19,554
Gross profit	2,789	591	-	3,380
Segment corporate expenses	(1,002)	(1,688)	(1,077)	(3,767)
Exceptional costs	(277)	-	(190)	(467)
EBITDA	1,510	(1,097)	(1,267)	(854)
Depreciation	(1,274)	(51)	-	(1,325)
Amortisation	(304)	-	-	(304)
Segment loss	(68)	(1,148)	(1,267)	(2,483)
Share-based payment expense				-
Operating loss				(2,483)
Finance income				80
Finance costs				(275)
Loss before taxation				(2,678)

2012

	Plant Operations	EPC contracts	Other corporate expenses	Consolidated
	£'000	£'000	£'000	£'000
External revenue	10,381	12,037	-	22,418
Gross profit	2,611	2,003	-	4,614
Segment corporate expenses	(1,085)	(1,969)	(934)	(3,997)
Exceptional costs	-	(60)	(91)	(151)
EBITDA	1,526	(26)	(1,034)	466
Depreciation	(1,260)	(58)	-	(1,318)
Amortisation	(304)	-	-	(304)
Segment loss	(38)	(84)	(1,034)	(1,156)
Share-based payment expense				(21)
Operating loss				(1,177)
Finance income				70
Finance costs				(172)
Loss before taxation				(1,279)

4.     Income tax

	2013 £'000	2012 £'000
Current tax
Research and development tax credit	(94)	(102)
Total current tax	(94)	(102)
Deferred tax
Deferred tax credit	(82)	(140)
Total deferred tax	(82)	(140)
Total tax credit for the year	(176)	(242)

The taxation assessed for the year differs from the standard rate of corporation tax in the United Kingdom 23.25% (2012: 24.5%).  The charge is affected by a number of factors in addition to the standard United Kingdom rate. 

The differences are explained as follows: 

	2013 £'000	2012 £'000
Loss before tax	(2,678)	(1,279)
Income tax credit calculated at 23.25% (2012: 24.5%)	(623)	(313)
Effect of  expenses not deductible	131	220
Losses surrendered for R&D tax credit	104	221
Repayable R&D tax credit	(116)	(120)
Movement in unprovided deferred tax asset	(308)	(179)
Adjustment for tax rate differences	636	(71)
Total tax credit for the year	(176)	(242)

Deferred tax liability

	2013 £'000	2012 £'000
Liability at 1 January	307	447
Amount credited to profit or loss in the year	(82)	(140)
Liability at 31 December	225	307

The rate at which deferred tax is expected to unwind is 20% (2012 : 23%) and this has been used to calculate the deferred tax liability.

Unrecognised deferred tax asset

The following temporary differences have not been recognised at the balance sheet date on the basis that there is insufficient evidence that the deferred tax asset will be recoverable against future profits of the Group:

	2013 £'000	2012 £'000
Tax losses	(23,762)	(19,963)
Accelerated tax depreciation	1,612	859
Temporary differences	(34)	(67)
	(22,184)	(19,171)

5.     Loss per share

	2013	2012
	£'000	£'000
Loss for the financial year after tax	(2,502)	(1,037)
Adjustments to basic earnings
Exceptional costs (note 4)	467	151
Underlying losses before exceptional costs	(2,035)	(886)
	Number	Number
Weighted average number of shares for the purposes of basic, diluted and underlying earnings per share	188,428,648	148,278,969
	Pence	Pence
Basic loss per share	(1.32)	(0.70)
Diluted loss per share	(1.32)	(0.70)
Basic and diluted underlying loss per share before exceptional costs	(1.08)	(0.60)

Underlying losses per share has been disclosed to give a clear understanding of the Group's underlying trading performance.  It has been calculated using the underlying earnings figures above and the weighted average number of ordinary shares above.

Diluted losses per share is equal to the basic loss per share as the share options in issue at 31 December 2013 are anti-dilutive in respect of the diluted loss per share calculation and have therefore not been included.

The deferred shares have not been included within the weighted average number of shares calculation on the basis that they are not entitled to any dividend or other distribution or to participate in any way in the income or profits of the Group.

6.     Annual report

Copies of the annual report are available from the Group's head office at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, PR7 7NA or can be downloaded from the Group's website at www.theteggroup.plc.uk.

 

END

 

 

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