Final Results

TEG Group (The) PLC 06 March 2007 For release 07.00am 6 March 2007 TEG GROUP PLC (TEG) ('TEG' or 'the Company') FINAL RESULTS for the year ended 31 December 2006 'Period of Excellent Progress; Further Significant Growth in Revenues Anticipated in 2007' 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 2006. Highlights Financial â€¢Turnover increased significantly by 641% to Â£3,559,330 (2005:Â£555,250) â€¢Post tax loss narrowed to Â£1,499,653 (2005:Â£1,675,984) â€¢Fundraising in April 2006, raising Â£8,050,000 before expenses to secure the continued expansion of the Todmorden facility â€¢No dividend proposed Operational â€¢Perth, Scotland, installation complete. Grant to TEG of Scotland's first composting PPC permit expected to act as a barrier to new entrants â€¢2 line plant constructed (38,000 tonnes pa) â€¢Preston, Sherdley Farm - Single line plant constructed (6,000 tonnes pa); a second line now under construction â€¢Swansea - Single line plant constructed (7,000 tonnes pa) â€¢Norfolk - a further 2 line plant constructed (24,000 tonnes pa) â€¢Development of largest facility, 50,000 tonnes pa, at Todmorden, West Yorkshire - among UK's biggest composting plants - building construction completed in January 2007 and first of four lines at Todmorden expected on stream April 2007 - ahead of schedule Contract Wins â€¢City and County of Swansea - construction completed during 2006 and handed over to the customer in February 2007 â€¢Banham Compost, Norfolk project - construction completed in 2006 and hand over expected in March 2007 â€¢Greater Manchester Waste Ltd - first contract for green waste supply to Preston â€¢Shell R & D contract - lab work successful and pilot scale trials currently underway â€¢United Utilities - full scale pilot plant installed in January 2007 Post Year-End Events â€¢Greater Manchester Waste PFI - TEG is the exclusive compost technology provider to the Viridor-Laing consortium selected as preferred bidder for the PFI contract. Assuming financial close, TEG expects to be awarded contracts to build 4 large facilities with sales orders worth up to Â£35 million over the next 3 years. Financial close is expected by 1 June 2007 and the plants will process 180,000 tonnes pa of food and garden waste collected in Greater Manchester Commenting, Mick Fishwick, Chief Executive, TEG Group Plc, said: 'Following the progress made in 2005, it is very pleasing to see the company build on its success and establish itself as a force in the composting market. Indeed, the announcement that TEG is the exclusive compost technology provider to the Viridor-Laing consortium that was awarded preferred bidder status for the Greater Manchester Waste PFI contract, Europe's largest ever waste management PFI contract, is a hugely significant step forward for TEG and an endorsement of TEG's technology and its ability to construct and operate large scale composting plants'. 'Based on the contracts awarded, the TEG plants now in operation, the number of enquiries the Company has received and the number of active projects, the Board expects to achieve further significant growth in revenues in 2007'. ENDS Contact: The TEG Group Plc Tel: 01772 314 100 Michael Fishwick, Chief Executive Adventis Financial PR Tel: 020 7034 4758 Tarquin Edwards 07879 458 364 Cannacord Adams (Nomad) Tel: 020 7050 6500 Robert Finlay Editor's Notes: 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 an 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. Chairman's Statement I am delighted to present the company's 2006 annual report. TEG has continued to make tremendous progress and it is a pleasure to report a further period of very significant growth. Turnover of Â£3,559,330 is well ahead of the previous year's figure (2005:Â£555,250). Losses narrowed from Â£1,675,984 to Â£1,499,653. No dividend is recommended. Following the progress made in 2005, it is very pleasing to see the company build on its success and establish itself as a force in the composting market. This progress has continued into 2007 and we announced on 29 January that TEG is to be the exclusive composting technology provider to the Viridor-Laing consortium that was selected as preferred bidder by Greater Manchester Waste Disposal Authority in its PFI process, considered to be the largest single waste management contract to be tendered in Europe. This quantum leap contract should bring a major increase in turnover and should place TEG in a strong position with prospective customers in the Local Authority sector. These accounts are the first to apply 'FRS20 Share based payment', the newly introduced accounting standard that requires companies to ascribe a cost to employee share options. This has introduced a non cash cost of Â£173,435 for the year, and the results for the same period in 2005 have been restated accordingly by Â£104,917. Plant Construction During 2006, TEG installed four plants and all plants were operational by the end of the year. A single line was constructed at Sherdley Farm (6,000 tonnes per annum), a two line plant was installed at Glenfarg, Perthshire (38,000 tonnes per annum), a single line plant was installed in Swansea (7,000 tonnes per annum) and a further two line plant was constructed in Norfolk (24,000 tonnes per annum). In addition, TEG acquired a freehold site in Todmorden and commenced construction of a new 50,000 tonnes per annum facility. Demolition of the existing buildings was completed in August 2006 and building construction was completed in January 2007. The construction programme is a month ahead of schedule and TEG is confident the first 2 lines of TEG Silo Cages will be operational in April 2007. The third and fourth lines are scheduled for construction in Quarter 3 of 2007, subject to market demand. TEG placed its first orders to its Polish contractor for the supply of the steelwork to the Todmorden facility. I am pleased to report the products were of excellent quality and delivery was on schedule. I can confirm that TEG will continue to work with its partner in Poland, both for engineering supply to the UK and for marketing of TEG in Eastern Europe. Contract Wins During 2006, TEG secured its first sale to the private sector, which was a Â£1.8m contract with Banham Compost Limited to construct a TEG plant and equipment within a new building at Carleton Rode, Norfolk. The plant was constructed in 2006 and commissioning commenced in December. It is anticipated that the plant will be handed over to the customer in March 2007. The sale to the City and County of Swansea was announced in 2005 and construction took place during 2006. The plant was handed over to the customer on 5 February 2007. The final contract value was Â£920,000 and the plant has been operating since November 2006. The majority of the revenue for both plants is recognised in our 2006 figures. During 2006, TEG also secured its first contract with Greater Manchester Waste Limited, for supply of green waste into the Sherdley Farm facility. Plant Operations The transition in Perth from the existing technology to the TEG plant proved more challenging than had been anticipated and it was unfortunately necessary to terminate some waste streams to facilitate the changeover process. I am pleased to report that the transition is complete and TEG has been able to commence waste sales to replace the waste streams that were terminated. The Scottish Environment Protection Agency ('SEPA') made the decision in early 2006 to apply Pollution Prevention and Control (PPC) legislation to composting plants in Scotland. The application process is time consuming and the application of environmental technology to meet the legislation is costly, but I am pleased to report that TEG has been awarded its PPC permit, the first composting business to achieve that in Scotland. I believe the application of PPC legislation will act as a barrier to new entrants. The second line at Sherdley Farm is now under construction. A new waste receipt building is to be constructed to accommodate the increased capacity. Other Contracts We were delighted to sign a research agreement with Shell in July 2006 to investigate the potential to remediate oil based mud drill cuttings. The laboratory work was carried out successfully and TEG progressed to pilot scale trials in November 2006. The outcome of the pilot scale trials will be known by early in Quarter 2 of 2007 and if successful will progress to full scale plant trials. TEG also secured an order from United Utilities Plc to construct a pilot scale facility at a United Utilities site in Manchester. The facility, a single Silo Cage unit, was installed in January 2007. In February 2006, TEG announced a collaboration with Glendale Managed Services Ltd, the UK's largest parks maintenance company. The collaboration with Glendale has proved very helpful in achieving qualification with Local Authorities and it is hoped this will progress to some contract gains in 2007. Fundraising Funding of the continued expansion of the Todmorden facility was achieved through a successful share issue fundraising in April 2006. TEG was able to raise Â£8,050,000 before expenses of Â£445,449, the cost of which has been charged against the share premium account. Market Update As predicted, the market continues to grow as legislation introduced in 2005 takes effect. The Landfill Directive 2001 and the Landfill Allowance Trading Scheme ('LATS') introduced under the Waste and Emissions Trading Act 2003 annually increases the requirements on Local Authorities to recycle and compost waste. As widely reported in the press, a number of Local Authorities are already failing to achieve targets and all Local Authorities are under increasing financial pressure to increase recycling and composting rates. To this end, TEG is in discussions with a number of Local Authorities. The National Audit Office report (Reducing the Reliance on Landfill in England dated 26 July 2006) indicated that a further step change in Local Authority procurement activity could reasonably be expected in late 2006 and early 2007. I am pleased to confirm that TEG is experiencing the predicted increase in market activity. As one of the few proven composting technologies meeting the standards of the ABP Regulations, TEG is able to tender for a range of applications. Management and group structure As the company continues its strong growth, it is vital that the management team is continually strengthened to manage the increased activity. Doug Benjafield joined the board as non-executive Director in May 2006. In addition, Jayne Pierre, an experienced waste management professional, joined us in April 2006 from Mouchel Parkman. At the beginning of 2007, TEG re-structured the business, creating two new subsidiaries that will take operational responsibility for the group. TEG Environmental Limited will be the principal operating company, managing operations, engineering, sales and research and development. Fergus Healy, Fiona Maudsley-Drain and Jayne Pierre were appointed to the board of the subsidiary, which will be chaired by the group Chief Executive, Mick Fishwick. Tanja Willis, Finance Director, and Alan Heyworth will also sit on this board. The Natural Organic Fertilizer Company Limited ('NOFCO') will focus on developing markets for compost sales and placement. Mike Orr was appointed to the board of NOFCO, along with Mick Fishwick and Tanja Willis. In addition, TEG has further strengthened its engineering development teams in the knowledge of the major business opportunities that are presenting themselves. Post Year-end events Most significantly, TEG was delighted to announce it is the exclusive compost technology provider to the Viridor-Laing consortium that was awarded preferred bidder status for the Greater Manchester Waste PFI contract. Assuming financial close, TEG expects to be awarded contracts to build 4 large facilities with sales orders worth up to Â£35m over the next three years. Financial close is expected by 1 June 2007, at which point TEG's contract will become unconditional. The plants will process 180,000 tonnes per annum of food and garden waste collected in Greater Manchester. This is a hugely significant step forward for TEG and an endorsement of TEG's technology and its ability to construct and operate large scale composting plants. Future Prospects Based on the contracts achieved, the TEG plants now in operation, the number of enquiries the company has received and the number of active projects, the Board expects to achieve further significant growth in turnover in 2007. Shareholders will be advised of the date and location of the Annual General Meeting in due course. Nigel Moore Chairman 6 March 2007 PROFIT AND LOSS ACCOUNT For the year ended 31 December 2006 Note 2006 Restated Note 7 2005 Â£ Â£ Turnover - continuing activities 3,559,330 555,250 Cost of sales (2,951,550) (510,298) ------------ ------------ Gross profit 607,780 44,952 ----------------------------- ------ ------------- ------------ Share based administrative expenses (173,435) (104,917) Other operating charges (2,003,759) (1,698,993) ----------------------------- ------ ------------- ------------ Total operating charges (2,177,194) (1,803,910) ------------ ------------ Operating loss - continuing activities (1,569,414) (1,758,958) Interest receivable - bank interest 154,579 69,971 Interest payable and similar charges (145,481) (40,107) ------------ ------------ Loss on ordinary activities before taxation (1,560,316) (1,729,094) Tax on loss on ordinary activities 2 60,663 53,110 ------------ ------------ Loss for the financial year transferred to reserves (1,499,653) (1,675,984) ============= ============= ------------ ------------ Loss per share - basic and diluted 3 (4.48p) (8.44p) BALANCE SHEET As at 31 December 2006 Note 2006 Restated Note 7 Â£ 2005 Â£ Fixed assets Intangible assets 2,056,812 2,269,584 Tangible assets 7,564,337 1,093,289 Investments 2 2 ----------- ------------- 9,621,151 3,362,875 Current assets Stocks 355,638 123,070 Debtors 708,311 429,981 Cash at bank and in hand 2,242,554 2,414,392 ----------- ------------- 3,306,503 2,967,443 Creditors: amounts falling due within one year (1,577,552) (1,338,846) Net current assets 1,728,951 1,628,597 ----------- ------------- Total assets less current liabilities 11,350,102 4,991,472 Creditors: amounts falling due after more than one year (1,982,941) (1,958,644) ----------- ------------- Net assets 9,367,161 3,032,828 =========== ============= Capital and reserves Called up share capital 1,902,269 1,319,269 Share premium account 19,387,544 12,309,993 Other reserves 326,632 153,197 Profit and loss account (12,249,284) (10,749,631) ----------- ------------- Equity shareholders' funds 9,367,161 3,032,828 CASH FLOW STATEMENT For the year ended 31 December 2006 Note 2006 2005 Â£ Â£ Net cash outflow from operating activities 4 (1,729,354) (1,126,123) ------------ ------------ Returns on investments and servicing of finance Interest received 154,579 69,971 Finance lease interest paid (2,648) (2,749) Loan interest paid (33,759) - ------------ ------------ Net cash inflow from returns on investments and servicing of finance 118,172 67,222 R&D tax credit 63,573 65,311 ------------ ------------ Taxation 63,573 65,311 Capital expenditure and financial investment Purchase of tangible fixed assets (6,328,991) (841,771) Sale of tangible fixed assets 11,614 3,859 ------------ ------------ Net cash outflow from capital expenditure and financial investment (6,317,377) (837,912) Acquisitions and disposals Acquisition of business - initial payment - (202,500) Acquisition of business - deferred consideration (300,000) (150,000) ------------ ------------ Net cash outflow from acquisitions and disposals (300,000) (352,500) Financing New bank loan 426,000 - Repayment of loan (71,000) - Issue of shares 8,106,000 3,700,000 Expenses paid in connection with share issues (445,449) (242,550) Capital element of finance lease rentals (22,403) (23,340) ------------ ------------ Net cash inflow from financing 7,993,148 3,434,110 ------------ ------------ (Decrease) / increase of cash 5 (171,838) 1,250,108 NOTES TO THE FINAL RESULTS 1. BASIS OF PREPARATION OF FINANCIAL INFORMATION The financial information contained in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The balance sheet at 31 December 2006 and the profit and loss account, cash flow statement and associated notes for the year then ended have been extracted from the Company's 2006 statutory financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237(2) of the Companies Act 1985. Those financial statements have not yet been delivered to the Registrar of Companies. The figures for the period ended 31 December 2005 have been extracted from the statutory financial which have been filed with the Registrar of Companies. The preliminary announcement has been prepared in accordance with applicable United Kingdom accounting standards and under the historical cost accounting rules. The principal accounting policies of the Company are set out in the Company's 2006 Annual Report and Financial Statements and have remained unchanged from the previous year with the exception of the adoption of 'FRS 20 Share-based Payment'. The adoption of this standard represents a change in accounting policy and the comparative figures have been restated accordingly. Details of the effect of prior year adjustments are given in note 7. 2. TAXATION The tax credit represents a claim for R&D tax credit 3. LOSS PER SHARE The loss per share is calculated by reference to the losses attributable to ordinary shareholders divided by the weighted average of 33,451,682 ordinary shares for the 12 months to 31 December 2006, and 19,859,354 for the 12 months to 31 December 2005. 2006 Restated 2005 Attributable loss (1,499,653) (1,675,984) ============= ============= Average number of shares in issue for basic and diluted loss per share 33,451,682 19,859,354 ============= ============= Loss per share (4.48p) (8.44p) The loss for the period and the weighted average number of ordinary shares for the purpose of calculating the diluted loss per share are the same as for the basic loss per share calculation. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under the terms of Financial Reporting Standard No. 22 ('FRS 22'). 4. RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES 2006 Restated 2005 Â£ Â£ Operating loss (1,569,414) (1,758,958) Amortisation 212,772 74,914 Depreciation 309,641 75,640 Share based administrative expense 173,435 104,917 (Profit) / loss on sale of tangible fixed assets (3,378) 78,032 Increase in stocks (232,568) (114,904) Increase in debtors (281,240) (342,060) (Decrease) / increase in creditors (338,602) 756,296 ------------- ------------- Net cash outflow from operating activities (1,729,354) (1,126,123) 5. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2006 2005 Â£ Â£ (Decrease) / increase in cash in the year (171,838) 1,250,108 Cash (inflow) / outflow from (increase) / decrease in debt and lease financing (332,597) 23,340 ------------- ----------- Movement of net funds in the year (504,435) 1,273,448 Net funds at 1 January 2006 2,378,199 1,104,751 ------------- ----------- Net funds at 31 December 2006 1,873,764 2,378,199 6. ANALYSIS OF MOVEMENTS IN NET FUNDS At 1 January Cashflow At 31 December 2006 2006 Â£ Â£ Â£ Cash at bank and in hand 2,414,392 (171,838) 2,242,554 Bank loan - (355,000) (355,000) ----------- ----------- ----------- 2,414,392 (526,838) 1,887,554 Hire purchase agreements (36,193) 22,403 (13,790) ----------- ----------- ----------- 2,378,199 (504,435) 1,873,764 7. PRIOR YEAR ADJUSTMENTS The prior year adjustments relate to the implementation of FRS 20 'Share-based payment' and the reclassification of certain administration expenses. FRS 20 'Share-based payment' During the year, the company adopted FRS 20 'Share-based payment'. The adoption of this standard constitutes a change in accounting policy. Therefore the impact has been reflected as a prior year adjustment in accordance with Financial Reporting Standard 3. The standard requires that where shares or rights to shares are granted to third parties, including employees, a charge should be recognised in the profit and loss account based on the fair value of the shares at the date of the grant of shares or right to shares is made. Reclassification Following a review by management, certain costs totalling Â£253,506 which had previously been included in operating charges have now been more appropriately included within cost of sales. The profit and loss account for the year ended 31 December 2005 has been restated accordingly. There is no impact on the loss as a result of this reclassification. The effect of the adoption of FRS 20 'Share-based payment' and the reclassification on the comparatives is as follows: Year ended 31 December 2005 As previously Impact of FRS Reclassification As restated reported 20 Â£ Â£ Â£ Â£ Turnover 555,250 - - 555,250 Cost of sales (256,793) - (253,505) (510,298) ------------ ------------ ------------ ------------ Gross profit 298,457 - (253,505) 44,952 Operating charges (1,952,498) (104,917) 253,505 (1,803,910) ------------ ------------ ------------ ------------ Operating loss (1,654,041) (104,917) - (1,758,958) ============ ============ ============ ============ Loss for the financial year (1,571,067) (104,917) - (1,675,984) ============ ============ ============ ============ Net assets 3,032,828 - - 3,032,828 8. RECONCILIATION OF EQUITY SHAREHOLDERS' FINDS 2006 Restated Â£ 2005 Â£ Loss for the financial year (1,499,653) (1,675,984) Issue of shares 7,660,551 3,457,450 FRS 20 share option charge 173,435 104,917 ----------- ----------- Net addition to shareholders' funds 6,334,333 1,886,383 Opening shareholders' funds as restated 3,032,828 1,146,445 ----------- ----------- Closing shareholders' funds 9,367,161 3,032,828 9. POST BALANCE SHEET EVENT On 1 January 2007 the company changed its name to The TEG Group PLC. The TEG Group PLC has two 100% owned subsidiaries, TEG Environmental Limited and The Natural Organic Fertiliser Company Limited ('NOFCO'). TEG Environmental Limited is the principal operating company and NOFCO is a marketing company, focused on the development of compost markets. Both companies were dormant as at 31 December 2006. Copies of the Annual Report and Accounts will be posted shortly. Copies will be available from the Company's head office at Houston House, 12 Sceptre Court, Sceptre Point, Preston, PR5 6AW. This information is provided by RNS The company news service from the London Stock Exchange

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