Final Results

RNS Number : 2573P

TEG Group (The) PLC

23 March 2009

 



For release

07.00am

23 March 2009

TEG GROUP PLC (TEG/L)

('TEG' or 'the Company')

FINAL RESULTS

'TEG Delivers Significant Increase in Revenues and Performance'

TEG Group Plc, the leading green technology company, which converts organic wastes into natural organic fertiliser announces its final results for the year ended 31 December 2008.

Highlights

Financial 

• Trading for 2008 has matched expectations with 6 fold increase in revenues on prior period with improvement in trading across all Group operations

• Turnover substantially increased to £12,706,000 (2007: £2,169,000)

• Move into Gross Profit of £1,997,000 (2007: £236,000 loss) 

• Post tax loss significantly reduced to £1,475,000 (2007: £3,034,000 loss), after share based administrative expenses

• Healthy cash position with £6,831,000 as of 31/12/08

Operational

• Revenues from plant sales increased significantly with 2 further facilities completed

• Commencement of first facility in Greater Manchester - construction on programme

• Financial Close at Greater Manchester expected shortly

• Expansion of Todmordon facility completed to accommodate increased sales volumes, which were the highest for any of the Group's operations in H2 of 2008

• Revenues from TEG operating plants up 68% with first revenues generated by NOFCO and third party maintenance contracts

• Legislative and Governmental drivers continue to act as stimulus for diversion of waste from landfill and for the development of new renewable energy and food waste recycling technologies

Post-period events

• Partnership & Collaboration Agreement  - concluded with UTS Biogastechnik GmbH ('UTS') the Munich based Anaerobic Digestion ('AD') technology provider, (announced 10/03/09), in which TEG sees considerable advantage in the development of AD facilities in tandem with its Silo Cage composting technology to accommodate what it perceives as considerable growth in AD in the UK over the next decade.  

Commenting, Nigel Moore, Non-Executive Chairman, TEG Group Plc, said:

'2008 has seen a significant step change in the revenues for the business with a 6 fold increase in revenues on 2007. The Group's pipeline of opportunities remains pleasingly strong and it is actively bidding for a sizeable number of significant contracts, including a number of further PFI/PPP projects, in addition to a large number of smaller waste sales opportunities.  

TEG is still observing very good market growth and a continued increase in interest in the organic waste sector, despite the global economic situation restricting short term funding of developments in the private sector, The addition of an AD technology to TEG's proposition will further broaden the range of opportunities open to TEG in the future.  

'Revenues for plant sales are recognised against completed programme milestones and are determined by activity levels at each project stage. Construction of the Greater Manchester plants is proceeding to schedule and activity levels in the first half of 2009 will be consistent with those in the second half of 2008. As the expected activity levels on the Greater Manchester build programme accelerate in the second half of the year, the Board anticipates significant overall growth in 2009 and anticipates continued growth of the Group beyond this period. The Board is confident that the Group has an exciting future with a strong outlook for trading in the remainder of 2009 and beyond.'

ENDS

Contact:
The TEG Group Plc www.theteggroup.plc.uk
Michael Fishwick, Chief Executive	Tel: [phone]
Adventis Financial PR
Tarquin Edwards/Chris Steele	Tel: [phone] 07879 458 364/07979 604 687
Canaccord Adams (Nomad)
Robert Finlay / Guy Blakeney	Tel : [phone]

Editor's Notes: 

TEG

TEG provides an in-vessel composting technology, which is one of the few approved technologies capable of treating animal by-product (ABP) waste. Plant economics are predominantly driven by the gate fees charged, rather than the value of the end product (compost). The TEG process is an economic alternative to landfill.

The Silo Cage system, one of the few technologies in Europe capable of treating this waste, is a natural process producing compost as an end product, used as 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, are not unsightly and are environmentally friendly.

Customers include local authorities, waste management companies, food processors, 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. The Waste Resource Action Programme estimates that 450 composting plants will be needed by 2020 to satisfy local authority requirements alone, and there is increasing demand from the private sector driven by ABP legislation.

NOFCO is a marketing company specialising in the development of end markets for compost products, an important aspect of all plant developments and key to local authority development. The company has established expertise in the development of agricultural and horticultural markets and this capability is to be provided to customers to enhance TEG's overall service offering.

Greater Manchester Waste PFI Contract

On 29 January 2007, TEG announced that it is a principal sub-contractor to the Viridor-Laing consortium that has been awarded preferred bidder status for the Greater Manchester Waste PFI contract. TEG is the exclusive supplier of In Vessel Composting ('IVC') technology to the consortium.

TEG is expected to build four plants as part of the consortium, over the period from 2008 to 2011 with a combined capacity of 175,000 tonnes per annum, producing 125,000 tonnes of compost product per annum. The plants will all process green waste and kitchen waste collected from households in the Greater Manchester region.  

TEG was awarded an Advanced Works Order ('AWO') in 2008 and construction of the facility at Rochdale commenced in June 2008. Design work for the proposed second plant at Bredbury was also included in the AWO.

Anaerobic Digestion

Anaerobic digestion is a series of processes in which microorganisms break down biodegradable material in the absence of oxygen. As part of an integrated waste management system, anaerobic digestion reduces the emission of landfill gas into the atmosphere. Anaerobic digestion is a renewable energy source because the process produces a methane and carbon dioxide rich biogas suitable for energy production helping replace fossil fuels. Also, the nutrient-rich solids left after digestion can be used as fertiliser.

  Chairman's statement

I am delighted to present the Group's 2008 annual report for the year ended 31 December 2008. TEG has delivered a significant increase in revenues and performance and the year has proved to be the defining period the Board had expected.  

Trading for 2008 has matched expectations. Full year turnover for 2008 was £12,706,000 (2007: £2,169,000) and losses were reduced to £1,475,000 (2007: £3,034,000 loss), after share based administration expenses. The Group recorded a gross profit of £1,997,000 (2007 £236,000 loss). No dividend is recommended.

Pleasingly, trading in all aspects of the Group's operations improved significantly in 2008. Revenues from plant sales increased substantially with two further facilities being completed and with the commencement of the first facility in Greater Manchester. Revenues from the TEG operating plants increased by 68% and the first revenues were generated by NOFCO and from third party maintenance contracts.

The Group has a healthy cash position with a closing balance as at 31 December 2008 of £6,831,000.

Greater Manchester Waste PFI Contract

Significant progress has been made towards the conclusion of the contract and the Board anticipates that Financial Close for the whole project will be reached in the near future. The contract is for the construction of four plants between 2008 and 2011 to process a total of 175,000 tonnes of kitchen and garden waste per annum. The plants to be constructed by TEG are progressively scheduled for construction between the third quarter of 2008 and the third quarter of 2011.  

It is anticipated that revenues will be in excess of £38m over the period of the contract, including the revenues already received in 2008.  

As previously announced on the 9 January and 30 April 2008, TEG received Advanced Works Orders ('AWOs') from Costain for the contract, to commence works at Rochdale and Bredbury, the first two of the four projected TEG plants. Construction commenced at Rochdale in June 2008, is well advanced and proceeding to programme. Design works at Bredbury have been largely completed and construction is scheduled to commence in 2009. The AWOs will be subsumed into the main contract.

Plant Sales and Construction

The construction of TEG's sixth facility, for Gwynedd Council, was completed on schedule in April 2008. The plant has run well since handover and TEG has been awarded a maintenance contract to carry out scheduled maintenance on the facility. 

Expansion of the Todmorden facility was completed as planned to accommodate increased sales volumes. A further 12,000 tonnes per annum of capacity was installed by the end of the year bringing the total capacity to approximately 37,000 tonnes per annum.

Construction of the first plant for Verdia Horticulture Limited ('Verdia') at Hillbarton, a Glendale site near Exeter, was completed in December 2008 and the plant is being commissioned during the first quarter of 2009. Verdia is the joint venture between TEG and Glendale Managed Services Limited.

During the second half of 2008, TEG constructed its first air management systems and biofilters for third party customers, successfully installing 2 plants. Air management systems are an important feature of all organic waste management facilities and TEG has successfully developed its own design of biofilter that has been in operation at Todmorden for 12 months.

  Group Plant Operations

Plant performance has generally been good throughout the year with no significant plant outages.  

Sales at Sherdley Farm in Preston increased by 137% on the same period in 2007. Customers now include two Local Authorities in addition to Veolia, Greater Manchester Waste Limited, Heinz and Schwan.

Todmorden completed its first full year of trading and by the end of the year contracted waste volume exceeded capacity, hence the installation of additional capacity. Whilst direct comparison with 2007 is not possible, waste sales in the first half of 2008 increased by 45% on the second half of 2007, and increased by a further 74% in the second half of 2008. Todmorden sales became the highest for any of the Group's operations in H2 of 2008.

Sales at the TEG plant in Perth were 8% higher in 2008 than in 2007 and the Board is pleased with the continued sales growth. Customer density is lower than at the other TEG facilities and the market is increasingly competitive but, despite this, the facility continues to contribute a positive gross margin to the Group.

Natural Organic Fertiliser Company Limited ('NOFCO')

NOFCO has continued to make excellent progress in the development of end markets for TEG's compost product. The first sales of compost were achieved at Perth where revenues exceed distribution costs and sales revenues across all the plants improved further in the second half of 2008.

The prestigious PAS100 Quality Protocol accreditation standard for TEG compost has been achieved at all three TEG facilities and this has enhanced the value of TEG's products. By achieving the PAS100 Quality Protocol standard, TEG's compost is classified by regulators as a product rather than a recycled waste material, thereby reducing the regulatory burden on product sales. New markets are developing for PAS100 standard compost and the Board anticipates further increases in revenues in 2009.

Market Update

As previously announced, the annual Landfill Tax ('LFT') escalator was increased in April 2008. The previous annual escalator of £3 per tonne of waste landfilled rose to £8 per tonne which, together with annual cost increases by operators, resulted in an overall price increase of £9-10 per tonne during the year. The same level of increase in LFT is also anticipated in April 2009 and 2010 bringing the tax from £24 per tonne at the start of 2008 to a total of £48 per tonne by April 2010, an increase of 100% over the 3 year period. TEG has observed an increase in market activity and recycling which it attributes to the increases in LFT.

In addition, statutory targets on Local Authorities for the diversion of waste from landfill are a further stimulus for the market and the Group has observed that the market continues to grow strongly.

A significant observation in 2008 has been the emphasis from Government on the potential for Anaerobic Digestion ('AD') as a form of renewable energy. In addition to its potential as an alternative means of food waste recycling, AD produces methane which can be burned in a turbine to produce renewable energy and it attracts Renewable Obligations Certificates. The methane can also be captured for use as a vehicle fuel. Whilst the technology is considered new to the UK, with only a handful of operators in the food waste sector, it is anticipated that Government will encourage the development of AD as a technology to be considered alongside the now established In Vessel Composting technologies.

The Group was delighted to be recognised for its achievements to date with two prestigious awards during 2008. The first was the AIM Achievement in Sustainability Award and the second was the Local Authority Partnership Award made by the Association for Organics Recycling. This was a joint award won with one of our customers, Sefton Council in Merseyside.

New Technologies

As announced on 10 March 2009, the Group has entered into a partnership and collaboration agreement with UTS Biogastechnik GmbH ('UTS'), the Munich based Anaerobic Digestion technology provider. In keeping with our observations of market developments, as detailed above in Market Update, the Board believes there will be considerable growth in AD in the United Kingdom over the next decade and TEG's expertise in organic waste treatment, operational experience and agricultural end market experience makes it ideally placed to develop AD facilities in tandem with its Silo Cage composting technology.

UTS is a market leader in AD technology with an impressive track record of facilities throughout Europe. Over a period of 15 years, UTS has constructed 70 AD plants and provided equipment to a further 1500. Crucially, UTS has a strong record in facilities processing food and catering waste, the feedstock TEG believes will be the most prevalent in new AD facilities in the UK.

TEG offers the partnership a track record in delivering projects in the public sector in the UK with the engineering and technical expertise to construct, maintain and operate facilities. The UTS technology fits well with the TEG Silo Cage composting technology, allowing the partnership to offer the range of solutions required to treat all Local Authority organic waste streams. 

Future Prospects

2008 has seen a significant step change in the revenues for the business with a 6 fold increase in revenues on 2007. The Group's pipeline of opportunities remains pleasingly strong and it is actively bidding for a sizeable number of significant contracts, including a number of further PFI/PPP projects, in addition to a large number of smaller waste sales opportunities.  

TEG is still observing very good market growth and a continued increase in interest in the organic waste sector, despite the global economic situation restricting short term funding of developments in the private sector. The addition of an AD technology to TEG's proposition will further broaden the range of opportunities open to TEG in the future.  

Revenues for plant sales are recognised against completed programme milestones and are determined by activity levels at each project stage. Construction of the Greater Manchester plants is proceeding to schedule, and activity levels in the first half of 2009 will be consistent with those in the second half of 2008. As the expected activity levels on the Greater Manchester build programme accelerate in the second half of the year, the Board anticipates significant overall growth in 2009 and anticipates continued growth of the Group beyond this period. The Board is confident that the Group has an exciting future with a strong outlook for trading in the remainder of 2009 and beyond.

Nigel Moore

Chairman

23 March 2009

Consolidated income statement

For the year ended 31 December 2008

		2008	2007
	Notes	£'000	£'000
Continuing operations
Revenue		12,706	2,169
Cost of sales		(10,709)	(2,405)
Gross profit / (loss)		1,997	(236)
Other expenses		(3,773)	(3,118)
Operating loss from continuing operations	2	(1,776)	(3,354)
Finance income		407	436
Finance costs		(248)	(202)
Loss before tax		(1,617)	(3,120)
Income tax	3	142	86
Loss for the year		(1,475)	(3,034)
Attributable to:
Equity holders of the parent		(1,475)	(3,034)
Retained loss		(1,475)	(3,034)
Total and continuing loss per share
Basic and diluted (pence)	4	(3.055)	(6.725)

Consolidated balance sheet

at 31 December 2008

	2008	2007
	£'000	£'000
ASSETS
Non-current assets
Goodwill	2,270	2,270
Property, plant and equipment	11,014	9,839
	13,284	12,109
Current assets
Inventories	192	234
Trade and other receivables	3,646	1,106
Taxation receivable	142	86
Cash and cash equivalents	6,831	8,916
	10,811	10,342
Total assets	24,095	22,451
LIABILITIES
Current liabilities
Trade and other payables	4,189	1,084
Borrowings	247	150
Deferred consideration	238	252
	4,674	1,486
Non-current liabilities
Borrowings	2,024	2,099
Deferred consideration	1,390	1,585
	3,414	3,684
Total liabilities	8,088	5,170
Net assets	16,007	17,281
EQUITY
Equity attributable to equity holders of the parent
Share capital	2,414	2,414
Share premium	29,357	29,357
Other reserve	752	551
Retained losses	(16,516)	(15,041)
Total equity	16,007	17,281

Consolidated statement of changes in shareholders' equity

for the year ended 31 December 2008

	Share capital	Share premium	Other reserve	Retained losses	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2007	1,902	19,388	327	(12,007)	9,610
Loss for the year	-	-	-	(3,034)	(3,034)
Issue of new ordinary share capital	500	-	-	-	500
Premium on issue of new ordinary share capital	-	10,598	-	-	10,598
Issue costs	-	(629)	-	-	(629)
Recognition of share-based payments	-	-	224	-	224
Issue of ordinary shares under employee share option plan	12	-	-	-	12
Balance at 1 January 2008	2,414	29,357	551	(15,041)	17,281
Loss for the year	-	-	-	(1,475)	(1,475)
Recognition of share-based payments	-	-	201	-	201
Balance at 31 December 2008	2,414	29,357	752	(16,516)	16,007

Consolidated cash flow statement

For the year ended 31 December 2008

	2008	2007
	£'000	£'000
Cash flows from operating activities
Loss after taxation	(1,475)	(3,034)
Adjustments for:
Depreciation	804	579
Share-based administrative expense	201	224
Taxation credit recognised in income statement	(142)	(86)
Interest expense	248	202
Investment income	(407)	(436)
Loss on sale of property, plant and equipment	47	10
Increase in trade and other receivables	(2,540)	(458)
Decrease in inventories	42	122
Increase in trade payables	3,106	389
Cash used in operations	(116)	(2,488)
Interest paid	(158)	(102)
Income taxes received	86	61
Net cash used in operating activities	(188)	(2,529)
Cash flows from investing activities
Acquisition of business - deferred consideration	(300)	(300)
Purchase of property, plant and equipment	(1,861)	(3,259)
Proceeds from sale of equipment	47	3
Interest received	407	436
Net cash used in investing activities	(1,707)	(3,120)
Cash flows from financing activities
Proceeds from issue of share capital	-	10,481
New bank loans raised	-	2,000
Repayment of loan	(142)	(142)
Payment of finance lease liabilities	(48)	(16)
Net cash from financing activities	(190)	12,323
Net (decrease) / increase in cash and cash equivalents	(2,085)	6,674
Cash and cash equivalents at beginning of the year	8,916	2,242
Cash and cash equivalents at end of the year	6,831	8,916

Notes 

For the year ended 31 December 2008

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 2008. The auditors reported pm those accounts; their report was unqualified and did not contain a statement under section 237 (2) or (3)of the Companies Act 1985. The statutory accounts for the year ended 31 December 2008 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

2.     Segment information

For management purposes, the Group is currently organised into the following segments:  Sale to third parties, Build own and operate facilities, Product management and Other revenue.  

Sale to third parties includes the design, production and installation of Silo-cage plants for sale to third party clients.

The build, own and operate segment relates to facilities which are owned and operated by the Group. These sites process waste received from customers. Product management is the management of the compost produced by the facilities that are owned and operated. Other revenue is as a result of maintenance contracts and research and development work carried out for third parties.

Segment information 

The revenues and net result generated by each of TEG Group Plc's business segments are summarised as follows:

2008

	Build, own and operate	Sales to third parties	Product management	Other revenue	Consolidated
	£'000	£'000	£'000	£'000	£'000
Revenue	2,108	10,518	57	23	12,706
Segment operating profit / (loss)	120	2,074	(197)	-	1,997
Segment corporate expenses	(997)	(775)	(216)	-	(1,988)
Unallocated corporate expenses					(1,785)
Operating loss					(1,776)
Finance income					407
Finance costs					(248)
Loss before taxation					(1,617)
Taxation					142
Loss for the year					(1,475)

Unallocated corporate expenses include £768,000 in respect of future business and research and development costs.

2007

	Build, own and operate	Sales to third parties	Product management	Other revenue	Consolidated
	£'000	£'000	£'000	£'000	£'000
Revenue	1,257	882	12	18	2,169
Segment operating (loss) / profit	(128)	22	(136)	6	(236)
Segment corporate expenses	(836)	(44)	-	-	(880)
Unallocated corporate expenses					(2,238)
Operating loss					(3,354)
Finance income					436
Finance costs					(202)
Loss before taxation					(3,120)
Taxation					86
Loss for the year					(3,034)

Unallocated corporate expenses include £568,000 in respect of future business and research and development costs.

Other information

2008

	Build, own and operate	Sales to third parties	Product management	Other revenue	Consolidated
	£'000	£'000	£'000	£'000	£'000
Capital additions	1,785	-	133	-	1,918
Depreciation	732	-	18	-	750

	Build, own and operate	Sales to third parties	Product management	Other	Consolidated
	£'000	£'000	£'000	£'000	£'000
Assets
Segment assets	13,534	3,017	155	-	16,706
Unallocated corporate assets					7,389
Consolidated total assets					24,095
Liabilities
Segment liabilities	4,223	3,407	89	-	7,719
Unallocated corporate liabilities					369
Consolidated total liabilities					8,088

Other information

2007

	Build, own and operate	Sales to third parties	Product management	Other revenue	Consolidated
	£'000	£'000	£'000	£'000	£'000
Capital additions	2,806	-	-	-	2,806
Depreciation	551	-	-	-	551

	Build, own and operate	Sales to third parties	Product management	Other	Consolidated
	£'000	£'000	£'000	£'000	£'000
Assets
Segment assets	12,549	518	7	-	13,074
Unallocated corporate assets					9,377
Consolidated total assets					22,451
Liabilities
Segment liabilities	4,583	328	28	-	4,939
Unallocated corporate liabilities					231
Consolidated total liabilities					5,170

  Geographic segments

  The Group's operations are all located in the United Kingdom and all revenue is generated within the United  

  Kingdom. 

3.     Income tax 

	2008 £'000	2007 £'000
Current income tax	(142)	(86)
Adjustments recognised in the current year in relation to the current tax of prior years	-	-
Total income tax	(142)	(86)

The total credit for the year can be reconciled to the accounting loss as follows:

	2008 £'000	2007 £'000
Loss before tax	(1,617)	(3,120)
Income tax credit calculated at 28.5% (2007:30%)	(461)	(936)
Effect of expenses not deductible / (income that is not chargeable) in determining taxable profit	51	(73)
Losses surrendered for R&D tax credit	252	161
Repayable R&D tax credit	(142)	(86)
Movement in unprovided deferred tax asset	87	611
Effect of change in rate of deferred tax	71	237
Income tax recognised in the income statement	(142)	(86)

Current tax assets and liabilities

	2008 £'000	2007 £'000
Current tax assets
R&D tax credit recoverable	(142)	(86)

Unrecognised deferred tax asset

The following deferred tax assets have not been recognised at the balance sheet date:

	2008 £'000	2007 £'000
Tax losses	(4,546)	(4,145)
Accelerated tax depreciation	706	619
Temporary differences	(68)	(155)
	(3,908)	(3,681)

4.     Loss per share

The loss per share is calculated by reference to the losses attributable to ordinary shareholders divided by the weighted average of 48,288,381 ordinary shares for the 12 months to 31 December 2008, and 45,111,984 for the 12 months to 31 December 2007.

	2008	2007
	£'000	£'000
Attributable loss	(1,475)	(3,034)
	No.	No.
Average number of shares in issue for basic and diluted loss per share	48,288,381	45,111,984
Loss per share	(3.055p)	(6.725p)

The share options in issue are anti-dilutive in respect of the basic loss per share calculation and have therefore not been included.

5.     Annual report and accounts

Copies of the Annual Report and Accounts will be posted shortly. Copies will be available from the Group's head office at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, Lancashire, PR7 7NA or available from the Company's website www.theteggroup.plc.uk.

 .

 

END

 

 

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