Final Results

RNS Number : 8425C

TEG Group (The) PLC

14 March 2011

 



For release

07.00am

14 March 2011

The TEG GROUP PLC (AIM: TEG)

("TEG" or "the Company")

PRELIMINARY RESULTS

"TEG reports on a pleasing year and continues to deliver significant growth"

The TEG Group PLC, the AIM listed cutting edge green technology company, which develops and operates organic composting and energy plants, announces its preliminary results for the year ended 31 December 2010.

 

Highlights

Financial

·    Trading for 2010 has been pleasing, and the Group continues to deliver significant growth.

·    Full year revenue for 2010 increased by 35% to £20,740,000 (2009: £15,394,000)

·    Group operating losses reduced by 45% to £398,000 (2009: £720,000) after adjusting for the one-off gain of £15,000 (2009: £956,000) relating to negative goodwill arising from the acquisition of TEG Energy Limited in June 2009).

·    No dividend is recommended.

·    The Group maintains a healthy cash position with a closing balance as at 31 December 2010 of £3,389,000 (2009: £3,770,000).

Operational

Greater Manchester Waste PFI Contract

·    Construction of the second facility in Bredbury proceeded to plan and commissioning commenced in quarter 4 of 2010. 

·    Construction of the third facility in Trafford also proceeded to plan in 2010 and commissioning is scheduled to commence quarter 2 of 2011.

·    Construction of the fourth facility in Bolton continues to await its anticipated Instruction to Proceed ('ITP") from the client (as reported on 06/01/11).  It is now anticipated in the first half of 2011.

Perth AD Facility

·    Financial closure reached for TEG's first anaerobic digestion ("AD") facility.  The 16,000 tonnes per annum facility will generate 0.5-0.7 MW of electricity and 0.25 MW of heat.  The project is funded by Albion Ventures LLP ("Albion") and Zero Waste Scotland and is expected to be commissioned in quarter 2 of 2011.

Plant Operations

·    Revenues at all In-Vessel Composting ("IVC") sites continued to grow with an increase of 28% on 2009.  The Group processed 185,000 tonnes of organic waste in the period and has an annualised capacity in excess of 280,000 tonnes.

·    TEG completed the highly successful acquisition of Simpro Limited, the Midlands based, profitable and cash generative owner of six green waste composting sites. 

Strategic Activities

The AD market developed rapidly in 2010:

·    Licensing agreement with UTS Biogastechnik GmbH ("UTS") giving the Group exclusivity in the UK waste sector for UTS technology.

·    Received the support of the London Waste and Recycling Board ("LWaRB") for its proposed AD and IVC facility in Dagenham, East London.  LWaRB is to provide £1.9m of funding to the project, with Albion expected to provide the balance of funding.  First waste supply contract secured with LondonWaste.  Generating in excess of 1MW of electricity, the plant expected to move into construction in 2011 and be operational in 2012.

Market Update

·    Overall market has continued to grow as Local Authorities increasingly implement the separation of organic wastes from the municipal waste stream and the private sector increases its level of organic waste recycling. 

·    Statutory obligations to divert waste from landfill are increasing annually and are expected to increase continuously until 2020. 

·    Landfill Tax (LFT) continues to rise annually.

·   TEG has noted the continued increase in market interest in energy generation from food waste and the strengthening of interest in technologies such as AD.

·    Government and Local Authorities have placed an emphasis on the implementation of AD and TEG is progressing a number of tender enquiries for AD capacity, in addition to a continuing interest in IVC technology.

·    TEG anticipates Government policy will continue to support the expansion of the market for the foreseeable future.

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

"I am delighted to present the Group's preliminary results for the year, a period of further growth and expansion of trading activities.  Trading for 2010 has been pleasing, and the Group continues to deliver significant growth". 

"TEG maintains a strong pipeline of tender opportunities and anticipates the successful conclusion of further projects in 2011.  Market demand remains strong and the Group is well placed to continue to take advantage of the expanding market.  The Board is confident that the Group has an exciting future with a strong outlook for trading in the remainder of 2011 and beyond."

ENDS

Contact:
The TEG Group Plc	Tel: [phone]
Michael Fishwick, Chief Executive	www.theteggroup.plc.uk
Peckwater PR	Tel: [phone]
Tarquin Edwards	[e-mail]
Ambrian Partners Limited (Nomad)	Tel : [phone]
Andrew Craig / Ben Wright

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, and 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").  TEG owns its composting technology and has an agreement with UTS Biogastechnik GmbH ("UTS") for the provision of AD technology into the UK waste markets.  The TEG processes are an economic alternative to landfill.

The TEG Silo Cage System

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.  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, are not unsightly and are environmentally friendly.

Collaboration with UTS

Having supplied equipment to more than 1,500 equipped biogas plants, UTS Biogastechnik GmbH is one of the world's leading biogas companies.  The UTS group of companies offers services in the planning, construction, delivery and installation of biogas plants and their key components.  The company has its own production facilities and service shops, technical design and development departments as well as mobile mechanical and biological customer service technicians to support the international client base.  UTS also develops and sells specialized mixers, pumps and a variety of solid/liquid separating devices related to the biogas and agro/food markets. The company is headquartered near Munich, Germany with subsidiaries in Italy, Hungary, Spain, the Czech Republic and now a rapidly developing company UTS Biogas Limited. to service the United Kingdom & Ireland markets.

TEG Biogas (Perth) Limited

TEG Biogas (Perth) Limited ("TEG Biogas") is a joint venture company established by TEG with Albion LLP.  TEG Biogas is constructing a 16,000 tonnes per annum AD plant at TEG's Glenfarg site to produce 0.7MW of electrical power and 0.2MW of heat that is to be used by Binn Eco Park.  The facility is due to be completed in March 2011 and commissioned in April 2011.

General

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 Natural Organic Fertiliser Company Limited ("NOFCO"), a subsidiary of TEG, 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 an expertise in the development of agricultural and horticultural markets and this capability is provided to customers to enhance TEG's overall service offering.

Chairman's Statement

I am delighted to present the Group's preliminary results for the year ended 31 December 2010, a period of further growth and expansion of trading activities. 

Trading for 2010 has been pleasing, and the Group continues to deliver significant growth.  Full year revenue for 2010 increased by 35% to £20,740,000 (2009: £15,394,000) and the Group operating losses reduced by 45% to £398,000 (2009: £720,000) after adjusting for the gains of £15,000 (2009: £956,000) relating to negative goodwill arising from the acquisition of TEG Energy Limited in the prior year.   No dividend is recommended.

The Group maintains a healthy cash position with a closing balance as at 31 December 2010 of £3,389,000.

Greater Manchester Waste PFI Contract

Construction of the second facility (Bredbury) proceeded to plan and commissioning commenced in quarter 4 of 2010.  Construction of the third facility (Trafford Park) also proceeded to plan in 2010 and commissioning is scheduled to commence in quarter 2 of 2011.

As announced on 6 January 2011, the anticipated Instruction to Proceed ("ITP") for the construction of the fourth facility was not received before the end of 2010 as the client was unable to complete all its necessary site investigations.  It is now anticipated that the client will complete its site investigation works and issue the ITP in the first half of 2011. The fourth composting site is an integral part of TEG's contract with Costain and planning permission for the facility is in place.

Perth AD Facility

The Group was pleased to announce it achieved the financial closure of its first anaerobic digestion ("AD") facility.  The 16,000 tonnes per annum facility is being installed at TEG's Perth site and will generate 0.5 - 0.7 MW of electricity and 0.25 MW of heat, to be utilised on site in the Binn Eco Park development.  The project is funded by Albion Ventures LLP ("Albion") and Zero Waste Scotland and is expected to be commissioned in quarter 2 of 2011.  The Group retains a 50% shareholding in the project.

Group Plant Operations

Revenues at all in vessel composting ("IVC") sites continued to grow with an increase of 28% on 2009 through a combination of increased waste volumes and increased prices.  The Sherdley farm facility was progressively run down throughout the year, waste transferred to Todmorden and plant and equipment transferred to TEG Energy Limited at Carleton Rode.  The Sherdley Farm facility is being utilised by the Group for R&D and engineering activities. 

During 2010, the Group completed the highly successful acquisition of Simpro Limited, the Midlands based green waste composting business.  Simpro met its targets for 2010, is profitable and cash generative, and integration has proceeded well.

In aggregate, the Group processed 185,000 tonnes of organic waste in 2010 and now, following the acquisition of Simpro, has an annualised capacity in excess of 280,000 tonnes per annum.

The satisfactory overall plant performance was in spite of operational difficulties and waste shortages due to the unusually adverse weather conditions in the early and latter part of the year.

Strategic Activities

The AD market developed rapidly in 2010 and the Group has strengthened its ability to supply AD technology into the waste market.  In June 2010, TEG announced the signing of a licensing agreement with UTS Biogastechnik GmbH ("UTS") giving the Group exclusivity in the UK waste sector for UTS technology. UTS is a Munich based market leader in AD technology with an impressive track record of facilities throughout Europe.  TEG also continues to collaborate with Alkane Energy PLC ("Alkane") on a number of projects under the collaboration agreement signed in December 2009.  The ability to offer both IVC and AD components on tenders, together with Alkane's expertise in methane to energy projects, has greatly enhanced TEG's attractiveness as a bidder to potential customers.  It is pleasing to note a significantly improved interest from debt and project financiers in the funding of new projects.

The Group was very pleased to announce the support of the London Waste and Recycling Board ("LWaRB") for its proposed facility in Dagenham, East London.  LWaRB is to provide £1.9m of funding to the project, with Albion expected to provide the balance of funding.  The facility incorporates 30,000 tonnes per annum of AD capacity and 20,000 tonnes per annum of IVC capacity.  Generating in excess of 1MW of electricity, enough to power 2,000 homes, it is expected that the plant will move into construction in 2011 and will be operational in 2012.   The Group was delighted to announce on the 9^th March 2011 that it had been awarded a contract by LondonWaste Limited for 12,000-15,000 tonnes per annum of co-mingled food and green waste, which will provide a solid initial contract base for the Dagenham facility.

Market Update

The overall market has continued to grow as Local Authorities increasingly implement the separation of organic wastes from the municipal waste stream and the private sector increases its level of organic waste recycling.  Statutory obligations to divert waste from landfill are increasing annually and are expected to increase continuously until 2020.  Landfill Tax ("LFT") continues to rise annually; landfill tax rose by £8.00 per tonne in April 2010 and is expected to rise by a further £8.00 per tonne in April 2011, increasing the tax to a total of £56.00 per tonne.  Government has confirmed that LFT will rise by £8.00 per tonne per annum until at least 2013.  This is expected to continue to stimulate market growth for the foreseeable future.  In addition, the Welsh Assembly Government has maintained its policy to procure the construction of a number of organic waste facilities in the period from 2011 to 2013 and the Scottish Assembly is intending to progressively introduce a ban on the landfill of organic waste in both the public and private sectors. 

Two observations have been made with regards to the Government's Comprehensive Spending Review.  Firstly, it is likely to reduce some recycling streams in the short term as some Local Authorities delay the cost of implementation of new collection rounds for segregated waste streams.  However, this is considered to be localised and to be a short term delay.  Secondly, as anticipated by the Company and previously reported, TEG has noted a significant change in procurement policy by Local Authorities to the letting of long term contracts in return for private sector investment, as opposed to direct plant procurement.  Encouragingly, the Company has generated significant interest from potential financiers to fund such projects and the Board will continue to evaluate appropriate projects on a case by case basis.

TEG has also noted the continued increase in market interest in energy generation from food waste and the strengthening of interest in technologies such as AD.  Government and Local Authorities have placed an emphasis on the implementation of AD and TEG is progressing a number of tender enquiries for AD capacity in addition to a continuing interest in IVC technology.  Government incentives for AD and other renewable energy technologies are largely by subsidy for sales of power in the form of either renewable obligation certificates ("ROCs") or feed in tariffs ("FITs").  The level of subsidy available through ROCs and FITs for existing schemes has been determined by Government but the level of subsidy for future schemes will be reviewed in 2011.  The Government announcement on Renewable Heat Incentives ("RHI") has been recently released and offers further incentives for AD through the sale of surplus heat.

TEG anticipates that Government policy will continue to support the expansion of the market for the foreseeable future.

The longer term regulatory environment is also expected to benefit the Group.  TEG has further invested in its facilities in 2010 to ensure they meet the enhanced guidance introduced by Defra in 2009 and the Group believes its technology lends itself to the additional level of containment required.  In addition, the regulators have introduced policies to reduce the level of low grade green waste disposal which take effect in quarter 4 of 2011.  This is expected to increase the volume of green waste diverted into the composting sector.

Future Prospects

Market demand remains strong and the Group is well placed to continue to take advantage of the expanding market.  TEG maintains a strong pipeline of tender opportunities and anticipates the successful conclusion of further projects in 2011, including the completion of its inaugral AD plant in Perth.  The Board is confident that the Group has an exciting future with a strong outlook for trading in the remainder of 2011 and beyond.

Nigel Moore

Chairman

14 March 2011

Consolidated statement of comprehensive income

For the year ended 31 December 2010

		2010	2009
	Note	£'000	£'000
Continuing operations
Revenue	2	20,740	15,394
Cost of sales		(15,876)	(11,905)
Gross profit		4,864	3,489
Administrative expenses - other		(4,968)	(4,344)
Amortisation of intangible assets		(152)	-
Acquisition costs		(142)	-
Profit on sale of joint venture		-	135
Negative goodwill	6	15	956
Total administrative expenses		(5,247)	(3,253)
Operating (loss) / profit from continuing operations		(383)	236
Finance income		9	71
Finance costs		(254)	(152)
(Loss) / profit before tax		(628)	155
Income tax	4	164	88
(Loss) / profit for the year		(464)	243
Other comprehensive income		-	-
Total comprehensive (loss) / income for the year		(464)	243
Attributable to:
Equity holders of the parent		(464)	243
Retained (loss) / profit		(464)	243
(Loss) / earnings per share
Basic (loss) / earnings per share (pence)	5	(0.71)	0.48
Diluted (loss) / earnings per share (pence)	5	(0.71)	0.48
Underlying loss per share (pence)	5	(0.74)	(1.41)

Consolidated statement of financial position

at 31 December 2010

		2010	2009
	Note	£'000	£'000
ASSETS
Non-current assets
Goodwill		6,152	2,270
Intangible assets		1,559	-
Property, plant and equipment		18,977	14,400
		26,688	16,670
Current assets
Inventories		616	407
Trade and other receivables		7,252	8,880
Taxation receivable		59	88
Cash and cash equivalents		3,389	3,770
		11,316	13,145
Total assets		38,004	29,815
LIABILITIES
Current liabilities
Trade and other payables		7,865	7,955
Taxation payable		258	-
Contingent consideration		450	-
Current portion of long-term borrowings		951	328
Current portion of deferred consideration		211	224
		9,735	8,507
Non-current liabilities
Long-term borrowings		1,716	1,942
Long-term deferred consideration		966	1,183
Deferred tax		662	-
		3,344	3,125
Total liabilities		13,079	11,632
Net assets		24,925	18,183
EQUITY
Equity attributable to equity holders of the parent
Share capital		3,781	2,651
Share premium		36,876	30,907
Other reserve		1,005	898
Retained losses		(16,737)	(16,273)
Total equity		24,925	18,183

Consolidated statement of changes in equity

for the year ended 31 December 2010

	Share capital	Share premium	Other reserve	Retained  losses	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2009	2,414	29,357	752	(16,516)	16,007
Issue of share capital	237	-	-	-	237
Premium on issue of share capital	-	1,663	-	-	1,663
Issue costs	-	(113)	-	-	(113)
Recognition of share-based payments	-	-	146	-	146
Transactions with owners	237	1,550	146	-	1,933
Profit for the financial year and total comprehensive income	-	-	-	243	243
Balance at 1 January 2010	2,651	30,907	898	(16,273)	18,183
Issue of share capital	1,130	-	-	-	1,130
Premium on issue of share capital	-	6,369	-	-	6,369
Issue costs	-	(400)	-	-	(400)
Recognition of share-based payments	-	-	107	-	107
Transactions with owners	1,130	5,969	107	-	7,206
Loss for the financial year and total comprehensive income	-	-	-	(464)	(464)
Balance at 31 December 2010	3,781	36,876	1,005	(16,737)	24,925

Consolidated statement of cash flows

For the year ended 31 December 2010

		2010	2009
		£'000	£'000
Cash flows from operating activities
(Loss) / profit after taxation		(464)	243
Adjustments for:
Negative goodwill		(15)	(956)
Depreciation		1,311	1,140
Amortisation of intangibles		152	-
Share-based administrative expense		107	146
Taxation credit recognised in consolidated statement of comprehensive income		(164)	(88)
Interest expense		254	152
Interest income		(9)	(71)
Loss on sale of property, plant and equipment		195	6
Profit on sale of joint venture		-	(135)
Decrease / (Increase) in trade and other receivables		2,385	(5,112)
Increase in inventories		(209)	(215)
(Decrease) / Increase in trade payables		(580)	2,887
Cash from / (used) in operations		2,963	(2,003)
Interest paid		(184)	(73)
Income taxes received		87	142
Net cash from / (used) in operating activities		2,866	(1,934)
Cash flows from investing activities
Acquisition of business - deferred consideration		(300)	(300)
Acquisition of subsidiary net of cash acquired		(4,863)	(612)
Purchase of property, plant and equipment		(3,808)	(1,922)
Proceeds from sale of property, plant and equipment		53	18
Proceeds from sale of joint venture		-	135
Interest received		9	71
Net cash used in investing activities		(8,909)	(2,610)
Cash flows from financing activities
Proceeds from issue of share capital		6,399	1,787
Repayment of loan		(173)	(215)
Payment of finance lease liabilities		(564)	(89)
Net cash from financing activities		5,662	1,483
Net decrease in cash and cash equivalents		(381)	(3,061)
Cash and cash equivalents at beginning of the year		3,770	6,831
Cash and cash equivalents at end of the year		3,389	3,770

Notes to the consolidated financial statements

For the year ended 31 December 2010

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 2010.  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 2010 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 2009.  These accounting policies have remained unchanged for the financial year ended 31 December 2010, except for the adoption of IFRS 3 Business Combination (Revised 2008).

The revised standard (IFRS 3R) was adopted as of 1 January 2010 and has introduced major changes to the accounting requirements for business combinations.  It retains the major features of the purchase method of accounting, now referred to as the acquisition method.   The most significant changes in IFRS 3R that had an impact on the Group's acquisitions in 2010 are as follows:

§ Acquisition-released costs of the combination are recorded as an expense in the income statement.  Previously, these costs would have been accounted for as a part of the cost of the acquisition.

§ Any contingent consideration is measured at fair value at the acquisition date.  If the contingent consideration   arrangement gives rise to a financial liability, any subsequent changes are generally recognised in profit and loss.  Previously, contingent consideration was recognised at the acquisition date only if its payment was probable.

IFRS 3R has been applied prospectively to business combinations for which the acquisition date is on or after 1 January 2010.  For the year ended 31 December 2010, the adoption of IFRS 3R has affected the accounting for the Group's acquisition of Simpro Limited (see note 6) by increasing the Group's expenses related to acquisition-related costs by £142,000.

Business combinations for which the acquisition date is before 1 January 2010 have not been restated.

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:

	2010 £'000	2009 £'000
Revenue from build, own and operate	5,784	3,206
Other revenue	36	128
Rendering of services	5,820	3,334
Revenue from sales of equipment to third parties	14,760	11,949
Product management	160	111
Sale of goods	14,920	12,060
Total revenue	20,740	15,394

Of the total revenue from sales to third parties £11,612,000 (2009: £11,478,000) relates to transactions with a single customer.  All of this amount relates to IVC sales to third parties.

3.    Business Segments

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

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

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

IVC sales to third parties includes the design, production and installation of Silo-cage plants for sale to third party clients. AD sales to third parties includes the production and installation of Anaerobic Digestion 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 consulting work carried out for third parties.  The revenues and net result generated by each of the Group's business segments are summarised as follows:

2010

	Build, own and operate	IVC Sales to third parties	AD sales to third parties	Product management and other revenue	Other corporate expenses	Consolidated
	£'000	£'000	£'000	£'000	£'000	£'000
External revenue	5,784	11,640	3,120	196	-	20,740
Gross profit / (loss)	1,544	3,189	317	(186)	-	4,864
Segment corporate expenses	(640)	(958)	(16)	(288)	(1,648)	(3,550)
Acquisition costs	(142)	-	-	-	-	(142)
Negative goodwill	15	-	-	-	-	15
Depreciation	(1,236)	-	-	(22)	(53)	(1,311)
Amortisation	(152)	-	-	-	-	(152)
Segment (loss) / profit before taxation	(611)	2,231	301	(496)	(1,701)	(276)
Share-based payment expense						(107)
Operating loss						(383)
Finance income						9
Finance costs						(254)
Loss before taxation						(628)
Taxation						164
Loss  for the year						(464)

Other corporate expenses include £673,000 in respect of future business and research and development costs.

2009

	Build, own and operate	IVC Sales to third parties	AD sales to third parties	Product management and other revenue	Other corporate expenses	Consolidated
	£'000	£'000	£'000	£'000	£'000	£'000
External revenue	3,206	11,949	-	239	-	15,394
Gross (loss) / profit	(76)	3,563	-	2	-	3,489
Segment corporate expenses	(309)	(868)	-	(413)	(1,333)	(2,923)
Negative goodwill	956	-	-	-	-	956
Depreciation	(1,018)	-	-	(29)	(93)	(1,140)
Segment (loss) / profit before taxation	(447)	2,695	-	(440)	(1,426)	382
Share-based payment expense						(146)
Operating profit						236
Finance income						71
Finance costs						(152)
Profit before taxation						155
Taxation						88
Profit for the year						243

Other corporate expenses include £694,000 in respect of future business and research and development costs.

4.    Income tax

	2010 £'000	2009 £'000
Current tax
Research and development  tax credit	(58)	(88)
Corporation tax	(27)	-
Total current tax	(85)	(88)
Deferred tax
Deferred tax credit	(79)	-
Total deferred tax	(79)	-
Total tax credit for the year	(164)	(88)

The taxation assessed for the year differs from the standard rate of corporation tax in the United Kingdom (28%).  The charge is affected by a number of factors in addition to the standard United Kingdom rate. 

The differences are explained as follows: 

	2010 £'000	2009 £'000
(Loss) / profit before tax	(628)	155
Income tax credit / (charge) calculated at 28% (2009: 28%)	(176)	43
Effect of  expenses not deductible / (income that is not chargeable)	119	(38)
Losses surrendered for R&D tax credit	116	177
Repayable R&D tax credit	(58)	(88)
Movement in unprovided deferred tax asset	(335)	(182)
Adjustment for tax rate differences	170	-
Total tax credit for the year	(164)	(88)

Deferred tax liability

	2010 £'000	2009 £'000
Liability at 1 January	-	-
Acquired with subsidiaries (see note 6)	262	-
Arising on recognition of intangible assets (see note 6)	479	-
Amount credited to income in the year	(79)	-
Liability at 31 December	662	-

The rate at which deferred tax is expected to unwind is 27% (2009: 28%) and this has been used to calculate the deferred tax liability.

Unrecognised deferred tax asset

The following deferred tax assets 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:

	2010 £'000	2009 £'000
Tax losses	(5,114)	(5,369)
Accelerated tax depreciation	255	264
Intangible assets	-	238
Temporary differences	(8)	(68)
	(4,867)	(4,935)

5.    (Loss) / earnings per share

	2010	2009
	£'000	£'000
(Loss) / profit for the financial year after tax	(464)	243
Adjustments to basic earnings
Negative goodwill	(15)	(956)
Underlying losses	(479)	(713)
	Number	Number
Weighted average number of shares for the purposes of basic earnings per share	65,089,854	50,760,984
Effect of dilutive potential ordinary shares	-	244,885
Weighted average number of shares for the purposes of diluted earnings per share	65,089,854	51,005,869
Weighted average number of shares for the purposes of underlying earnings per share	65,089,854	50,760,984
	Pence	Pence
Basic (loss) / earnings per share	(0.71)	0.48
Diluted (loss) / earnings per share	(0.71)	0.48
Basic underlying loss per share	(0.74)	(1.41)

Underlying earnings 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 earnings per share is the basic earnings per share after allowing for the dilutive effect of the conversion into ordinary shares of the number of options outstanding during the period.  The share options in issue at 31 December 2010 are anti-dilutive in respect of the basic loss per share calculation and have therefore not been included.

The contingent consideration relating to the acquisition of Simpro Limited (note 6) may have a dilutive effect on the future earnings per share.

6.    Business combination  

Simpro Limited

On 21 June 2010, the Group acquired 100% of the issued share capital of Simpro Limited, a company resident in the United Kingdom, for a consideration of £7,053,000 including £142,000 of acquisition-related costs which was settled by a combination of cash and equity.  The registered address of Simpro Limited is Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, Lancashire, PR7 7NA.  All of the acquisition-related costs have been recorded as an expense on the face of the consolidated statement of comprehensive income.  The transaction has been accounted for through the application of IFRS 3 Business Combination (Revised 2008) and using the acquisition method of accounting.

The acquisition represents a major step forward in the expansion of TEG's waste management operations in the UK.  

The strategic reasons for the acquisition included:

§ Strong financials and excellent platform for further growth

§ Site development

§ No competing technology on sites

§ Multiple sites

§ No geographic overlap

§ Contracts and local authority relationships

§ Compost product quality

The impact on Group revenues and profit attributable to the equity holders if the acquisition had been completed on the first day of the financial year would have been £2,670,000 and £666,000 respectively.

Fair values are provisional and will be reviewed during the hindsight period as further information is gathered relating to the fair values at the acquisition date.

The amounts provisionally realised for each class of the acquiree's assets and liabilities recognised at the acquisition date are as follows:

	Carrying amount under IFRS	Provisional fair value adjustments	Provisional fair value to the group
	£'000	£'000	£'000
Net assets acquired
Intangible assets	-	1,711	1,711
Property, plant and equipment	1,290	-	1,290
Trade and other receivables	755	-	755
Cash and cash equivalents	898	-	898
Total assets	2,943	1,711	4,654
Trade and other payables	(490)	(13)	(503)
Short-term debt	(96)	-	(96)
Current tax liability	-	(285)	(285)
Deferred tax liability	(313)	(428)	(741)
Total liabilities	(899)	(726)	(1,625)
Net assets	2,044	985	3,029
Goodwill arising on the acquisition			3,882
			6,911
Satisfied by
Cash consideration			5,761
Equity issued			400
Contingent equity consideration			750
			6,911

Under IFRS 3 Business Combinations (Revised 2008), the Group is required to apportion the purchase consideration between the tangible and intangible assets and liabilities of Simpro Limited.  A provisional fair value adjustment to recognise intangible assets of £1,711,000 and the related provisional deferred tax provision of £479,000 is directly attributable to customer contracts and relationships.  The estimated useful life of each contract and customer relationship is determined on an individual basis based on historical relationships.  The estimated useful life varies between four and eight years.

The £750,000 contingent equity consideration relates to specific milestone targets.  The number of shares issued is calculated by reference to the prevailing market price at the time the deferred consideration shares are issued.       Of this amount, £300,000 has been satisfied by the issue of shares prior to 31 December 2010 leaving contingent considerable payable of £450,000.

A further £150,000 was issued on 4 March 2011.  It is likely that the remaining £300,000 of the contingent equity will be issued during 2011. 

All shares issued in relation to the contingent consideration are issued at market value.

Simpro Limited contributed £1,673,000 of revenue and £395,000 of profit before tax to the Group's results for the period between the date of acquisition and the balance sheet date.

TEG Energy Limited (formerly known as Banham Compost Limited)

In the prior year, the Group acquired 100% of the issued share capital of Banham Compost Limited, a company based in the UK for a consideration of £615,000 including costs, which was settled in cash.  The transaction has been accounted for by the purchase method of accounting.

The provisional fair values have been reassessed during the hindsight period, giving rise to £15,000 of revisions to the provisional fair values and therefore a credit of this amount has been recognised as income in the statement of comprehensive income. 

7.    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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