Interim Results
TEG Group (The) PLC
24 September 2007
For release 07.00am 24 September 2007
TEG GROUP PLC (TEG)
('TEG' or 'the Company')
INTERIM RESULTS
The TEG Group Plc, the AIM-listed cutting edge green technology company, which
converts organic wastes into natural organic fertiliser announces its interim
results for the half year ended 30 June 2007.
Highlights
Financial
•Revenue of £0.54m (2006: £1.07m) reflecting inclusion in prior period of
Swansea contract revenues - TEG anticipates a large proportion of previously
announced new business revenue to materialise in 2008
•Post tax loss of £1.43m (2006: £0.60m)
•Oversubscribed placing in March 2007 to raise £11.0m before expenses in
preparation for Greater Manchester Waste PFI contract and future
'build-own-operate' opportunities
•No dividend proposed
Operational
•Swansea Council -Completion and handover of plant in February 2007
•Banham, Norfolk - Completion and handover of plant in May 2007
•Todmorden, West Yorkshire completed to schedule and first two of four
lines successfully commissioned in May and June. Revenue encouraging and
plant expected to ramp up to full production by October
•Preston, Sherdley Farm - a second 12-cage line installed increasing
capacity to approx. 12,000 tonnes pa. On completion of new waste receipt
building, plant to reach full capacity and development
•Perth, Scotland - planned capacity pleasingly achieved and plant now
running well - Following recent significant progress, plant sales, which had
appeared to be developing more slowly than anticipated (announced 05/06/07),
are now expected to be close to plan by end of Q4 - Grant to TEG of
Scotland's first composting PPC permit expected to act as a barrier to new
entrants
Contract Wins
•Greater Manchester Waste PFI - TEG selected as exclusive compost
technology provider to the Viridor-Laing consortium that was awarded
preferred bidder status for the Greater Manchester Waste PFI contract. TEG
is expected to build 4 large facilities with a combined capacity of 180,000
tonnes per annum. The plants will all process food and garden waste
collected in the Greater Manchester region. Planning secured for first plant
at Waithlands, Rochdale. Commercial close, which will allow construction
activities to commence at this site, is expected shortly.
•The Group also secured in April an interim £900,000 two year waste
management contract with Greater Manchester Waste Ltd to process green and
garden waste at Todmorden and Sherdley Farm
Other Contracts
•Shell R & D project - R&D work encouraging and further Laboratory work
underway
•United Utilities - trials completed successfully and TEG awaiting outcome
of review
Post Period-End Events
•New joint venture company, Verdia Horticulture Limited ('Verdia') set up
in collaboration with Glendale Managed Services Ltd to produce horticultural
grade compost products for sale to Glendale and to regional horticultural
markets.
•In August, TEG secured a further plant sale to Gwynedd Council for the
construction and supply of a £1.45m facility to process green and kitchen
waste. Completion and handover anticipated in April 2008. Revenues are
anticipated to commence this month.
Commenting, Mick Fishwick, Chief Executive, TEG Group Plc, said:
'The Group's pipeline of opportunities is stronger than ever and it is actively
bidding for numerous significant contracts in addition to a large number of
smaller waste sales opportunities. The operational success of the TEG facilities
to date and the endorsement demonstrated by the Greater Manchester and Gwynedd
contracts further strengthens the Board's belief that the Group has an exciting
future and that significant growth will be achieved'
ENDS
Contact:
The TEG Group Plc Tel: 01772 314100
Michael Fishwick, Chief Executive
Adventis Financial PR Tel: 020 7034 4758 / 59
Tarquin Edwards / Chris Steele 07879 458 364/ 07979 604 687
Cannacord Adams (Nominated adviser) Tel : 020 7050 6500
Chris Bowman / 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.
Chairman's statement
I am pleased to present the Group's 2007 interim report. TEG has continued to
make excellent progress and its sales pipeline has expanded impressively. During
the period, the Group announced it had been selected as a supplier 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. In addition,
a further contract has been recently secured with Gwynedd Council, further
evidence of local authority confidence in the TEG system, and a joint venture,
Verdia Horticulture Limited, was recently established with Glendale Managed
Services Ltd, the leading parks maintenance company. This business, together
with an excellent pipeline of other opportunities, is expected to yield
significant future revenues for the Group.
Revenue of £536,045 reflects the fact that a large proportion of the new
business outlined above will materialise in future periods whilst the previous
year's figure (2006 interim: £1,070,750) included revenues from the Swansea
construction project. Losses were £1,426,417 compared to £602,348 in the same
period in 2006. No dividend is recommended.
For the first time, these results are in accordance with the International
Financial Reporting Standards ('IFRS'). The comparative figures have been
restated on a consistent basis.
Plant Construction
During the first half of 2007, TEG completed the handover of the plants built
for The City and County of Swansea and for Banham Compost Limited. The Board was
very pleased with the execution of these contracts and particularly pleased with
the performance of the Banham facility, the first large scale plant sale by the
Group.
The Todmorden facility which the Group operates was completed to schedule and
the first two lines were successfully commissioned in May and June of this year.
Revenue from this plant has been encouraging and we expect the plant to have
proceeded up to full production by October.
A second 12-cage line was installed at the Sherdley facility, increasing
capacity to approximately 12,000 tonnes per annum. The construction of a new
waste receipt building commenced in August and once finished, it will complete
the planned development of that facility.
Final modifications to the plant in Perth were completed to ensure compliance
with the Scottish Environmental Protection Agency's (SEPA) Pollution Prevention
and Control (PPC) permit conditions, which were introduced by SEPA in 2006.
These modifications included the installation of air extract equipment and a
product off-take gantry. The Board believes the plant is the first to achieve
the higher PPC standard of licensing introduced in Scotland.
Contract Wins
The most notable success for the Group was its selection as preferred supplier
to the Viridor-Laing consortium that was awarded preferred bidder status for the
Greater Manchester Waste PFI. TEG is the exclusive supplier of In Vessel
Composting ('IVC') technology to the consortium and following commercial and
financial closure, TEG expects to receive orders to supply all the IVC capacity
in the Greater Manchester region.
TEG is expected to build four plants as part of the consortium, over the period
from 2007 to 2010 with a combined capacity of 180,000 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.
It is intended that the first plant to be constructed by TEG will be sited at
Waithlands, Rochdale. Planning permission has been secured which will allow
construction activities to commence following commercial closure of the
contract. The detailed contractual terms for the facility are close to
completion.
The three further plants to be constructed by TEG are progressively scheduled
for construction between the second quarter of 2008 and the second quarter of
2010. The planning application for the second site is due to be submitted in
September and the development of the two remaining sites is already underway in
anticipation of gaining planning approvals in 2008.
The Company also secured an interim waste management contract with Greater
Manchester Waste Ltd to process green and garden waste at Todmorden and Sherdley
Farm. The contract is for a period of two years with a further one year
extension option. Over the first two-year period, TEG will receive 44,000 tonnes
of waste and the contract value will be approximately £900,000.
Plant Operations
We announced on 5 June that our plant near Perth was being affected by the
slower than expected development of the waste and local authority markets in
Scotland and that sales of higher value waste had been below plan. Operationally
however, the plant at Perth has run well and has achieved its planned capacity
and I am now pleased to report that significant progress has been made and we
anticipate that the plant's sales will be close to plan by the end of quarter
four.
The Sherdley Farm plant is expected to ramp up to full capacity following
completion of construction of the waste receipt building in early October 2007.
Other contracts
The R&D project for Shell continues. Pilot scale work at Perth was encouraging
and some immediate success was noted but the need for further laboratory work
has been identified and this is underway.
The United Utilities trials were completed successfully and the Company awaits
the outcome of a review of strategy by United Utilities.
Fundraising
In preparation for the Greater Manchester contract and in anticipation of future
build own and operate opportunities, TEG successfully raised £11,000,000 before
expenses of £628,571 which have been charged against the share premium account.
The placing was over-subscribed with significant institutional demand and with
several new investors participating.
Management
The Company has continued to strengthen its business development, engineering,
operational and technical teams in advance of the anticipated construction
programme for Greater Manchester and other projects that are close to
completion. This has of course been balanced by the knowledge that revenues have
not yet commenced for these projects, but it is important that the Group is
prepared for the increase in activity on completion.
Post period-end events
TEG was delighted to advance its collaboration with Glendale Managed Services
Ltd ('Glendale')and to conclude a new joint venture company (JV), Verdia
Horticulture Limited ('Verdia'). Verdia's focus will be on building and
operating medium scale facilities, typically 10-15,000 tonnes per annum to
produce horticultural grade compost products for sale to Glendale and to
regional horticultural markets. It is anticipated that Verdia will build between
6 and 8 facilities over the next 2 to 3 years, geographically spread throughout
the UK.
TEG will supply TEG Silo Cage plants to Verdia and will provide technical
expertise and support, as well as marketing services for waste supply to the
plants. This is another significant endorsement of TEG and its technology and
offers an opportunity for the Group to establish itself in the horticultural
products sector and develop a new revenue stream.
In addition, TEG has secured a further plant sale to Gwynedd Council for the
construction and supply of a £1.45m facility to process green and kitchen waste.
Construction commenced on 10 September and it is anticipated that the plant will
be completed and handed over in April 2008. Revenues are anticipated to commence
this month.
Future Prospects
The Group's pipeline of opportunities is stronger than ever and it is actively
bidding for numerous significant contracts in addition to a large number of
smaller waste sales opportunities. The operational success of the TEG facilities
to date and the endorsement demonstrated by the Greater Manchester and Gwynedd
contracts further strengthens the Board's belief that the Group has an exciting
future and that significant growth will be achieved.
Nigel Moore
Chairman
24 September 2007
Consolidated condensed income statement
For the six months ended 30 June 2007
6 months 6 months Year
ended ended ended
30 June 2007 30 June 2006 31 December 2006
Unaudited Unaudited Unaudited
Note £ £ £
Revenue 3 536,045 1,070,750 3,559,330
Cost of sales (708,769) (838,496) (2,951,550)
Gross (loss)/profit (172,724) 232,254 607,780
Other expenses (1,321,113) (827,702) (1,964,422)
Operating loss 3 (1,493,837) (595,448) (1,356,642)
Finance costs (76,369) (57,409) (115,547)
Finance income 143,789 50,509 154,579
Loss before tax (1,426,417) (602,348) (1,317,610)
Income tax - - 60,663
Loss for the period (1,426,417) (602,348) (1,256,947)
Attributable to:
Equity holders of the (1,426,417) (602,348) (1,256,947)
parent
Retained loss (1,426,417) (602,348) (1,256,947)
Loss per share
Basic loss per share (3.406) (2.082) (3.757)
(pence)
Consolidated condensed balance sheet
As at 30 June 2007
30 June 2007 30 June 2006 31 December 2006
Unaudited Unaudited Unaudited
Note £ £ £
ASSETS
Non-current assets
Property, plant and equipment 9,647,330 4,915,181 7,594,271
Goodwill 2,269,584 2,269,584 2,269,584
11,916,914 7,184,765 9,863,855
Current assets
Inventories 221,820 355,833 355,638
Trade and other receivables 773,011 394,549 647,648
Taxation receivable 60,663 63,573 60,663
Cash and cash equivalents 8,989,430 5,467,677 2,242,554
10,044,924 6,281,632 3,306,503
Total assets 21,961,838 13,466,397 13,170,358
LIABILITIES
Current liabilities
Trade and other payables 973,252 770,412 1,154,761
Current portion of long-term 146,967 161,547 155,790
borrowings
Current portion of deferred 259,442 266,999 266,999
consideration
1,379,661 1,198,958 1,577,550
Non-current liabilities
Long-term borrowings 142,000 288,976 213,000
Long-term deferred 1,677,463 1,866,901 1,769,941
consideration
1,819,463 2,155,877 1,982,941
Total liabilities 3,199,124 3,354,835 3,560,491
Net assets 18,762,714 10,111,562 9,609,867
EQUITY
Equity attributable to equity
holders of the parent
Share capital 4 2,414,419 1,894,269 1,902,269
Share premium 29,357,073 19,339,544 19,387,544
Other reserves 424,217 229,728 326,632
Profit and loss account - (13,432,995) (11,351,979) (12,006,578)
deficit
Total equity 18,762,714 10,111,562 9,609,867
Consolidated condensed statement of changes in equity
6 months 6 months Year
ended ended ended
30 June 2007 30 June 2006 31 December 2006
Unaudited Unaudited Unaudited
£ £ £
Equity at the beginning of the period 9,609,867 3,032,828 3,032,828
Loss for the period (1,426,417) (602,348) (1,256,947)
Total recognised income and expense for (1,426,417) (602,348) (1,256,947)
the period
IFRS 2 share option charge 97,585 76,531 173,435
Issue of share capital 10,481,679 7,604,551 7,660,551
Equity at the end of the period 18,762,714 10,111,562 9,609,867
Consolidated condensed cash flow statement
For the six months ended 30 June 2007
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Unaudited Unaudited Unaudited
£ £ £
Cash flows from operating activities
Loss after taxation (1,426,417) (602,348) (1,256,947)
Adjustments for:
Depreciation 223,185 125,114 309,640
Share based administrative expense 97,585 76,531 173,435
Taxation credit recognised in profit and - - (60,663)
loss
Interest expense 76,369 57,409 115,547
Investment income (143,789) (50,509) (154,579)
Profit on sale of property, plant and - (9,559) (3,379)
equipment
Increase in trade and other receivables (125,363) (28,141) (281,240)
Decrease / (increase) in inventories 133,818 (232,763) (232,568)
Increase / (decrease) in trade payables 278,424 (263,018) (338,599)
Cash used in operations (886,188) (927,284) (1,729,353)
Interest paid (26,404) (1,375) (36,408)
Income taxes received - - 63,573
Net cash used in operating activities (912,592) (928,659) (1,702,188)
Cash flows from investing activities
Acquisition of business - deferred (150,000) (150,000) (300,000)
consideration
Purchase of property, plant and equipment (2,736,177) (3,943,898) (6,328,991)
Proceeds from sale of equipment - 6,452 11,614
Interest received 143,789 50,509 154,579
Net cash used in investing activities (2,742,388) (4,036,937) (6,462,798)
Cash flows from financing activities
Proceeds from issue of share capital 10,481,679 7,604,551 7,660,551
New bank loans raised - 426,000 426,000
Repayment of loan (71,000) - (71,000)
Payment of finance lease liabilities (8,823) (11,670) (22,403)
Net cash from financing activities 10,401,856 8,018,881 7,993,148
Net increase / (decrease) in cash and cash 6,746,876 3,053,285 (171,838)
equivalents
Cash and cash equivalents at beginning of 2,242,554 2,414,392 2,414,392
period
Cash and cash equivalents at end of period 8,989,430 5,467,677 2,242,554
Notes to the interim report
1. Nature of operations and general information
TEG Group plc and its subsidiaries' ('the Group') principal activities continue
to be the design and production of Silo-cage plants for sale to third party
clients, and the design, build and operation of TEG owned facilities.
Refer to note 3 for further information about the Group's operating segments.
TEG Group plc is the Group's ultimate parent company. It is incorporated and
domiciled in Great Britain. The address of TEG Group plc's registered office,
which is also its principal place of business, is Houston House, 12 Sceptre
Court, Sceptre Point, Preston, PR5 6AW, United Kingdom. TEG Group plc's shares
are listed on the Alternative Investment Market of the London Stock Exchange.
TEG Group plc's consolidated interim financial statements are presented in
Pounds Sterling (£), which is also the functional currency of the parent
company.
These consolidated condensed interim financial statements have been approved for
issue by the Board of Directors on 24 September 2007.
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
Group's statutory financial statements for the year ended 31 December 2006,
prepared under UK GAAP, have been filed with the Registrar of Companies. The
auditors' report on those financial statements was unqualified and did not
contain a statement under Section 237(2) of the Companies Act 1985.
Basis of preparation
These interim condensed consolidated financial statements are for the six months
ended 30 June 2007. They have been prepared in accordance with the requirements
of IFRS 1 'First-time Adoption of International Financial Reporting Standards'
relevant to interim reports, because they are part of the period covered by the
Group's first IFRS financial statements for the year ended 31 December 2007.
They do not include all of the information required for full annual financial
statements, and should be read in conjunction with the consolidated financial
statements of the Group for the year ended 31 December 2006.
The financial statements have been prepared under the historical cost convention
except that they have been modified to include the revaluation of certain
non-current assets/ financial assets and liabilities. The measurement bases and
principal accounting policies of the Group are set out below.
These condensed consolidated interim financial statements (the interim financial
statements) have been prepared in accordance with the accounting policies set
out below which are based on the recognition and measurement principles of IFRS
in issue as adopted by the European Union (EU) and are effective at
31 December 2007 or are expected to be adopted and effective at
31 December 2007, our first annual reporting date at which the Group is required
to use IFRS accounting standards adopted by the EU.
TEG Group plc's consolidated financial statements were prepared in accordance
with United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) until 31 December 2006. The date of transition to IFRS was
1 January 2006. The comparative figures in respect of 2006 have been restated to
reflect changes in accounting policies as a result of the adoption of IFRS. The
disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS
are given in the reconciliation schedules, presented and explained in note 6.
The accounting policies have been applied consistently throughout the Group for
the purposes of preparation of these condensed consolidated interim financial
statements.
2. Summary of significant accounting policies
Basis of consolidation
The Group financial statements consolidate those of the company and its
subsidiary undertakings drawn up to the balance sheet date. Subsidiaries are
entities over which the Group has the power to control the financial and
operating policies so as to obtain benefits from its activities. The Group
obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Amounts reported in
the financial statements of subsidiaries have been adjusted where necessary to
ensure consistency with the accounting policies adopted by the Group.
Business combinations completed prior to date of transition to IFRS
The Group has elected not to apply IFRS 3 Business Combinations retrospectively
to business combinations prior to date of transition.
Accordingly, the classification of the combination (acquisition) remains
unchanged from that used under UK GAAP. Assets and liabilities are recognised at
the date of transition if they would be recognised under IFRS, and are measured
using their UK GAAP carrying amount immediately post-acquisition as deemed cost
under IFRS, unless IFRS requires fair value measurement. Deferred tax is
adjusted for the impact of any consequential adjustments after taking advantage
of the transitional provisions.
Goodwill
Goodwill representing the excess of the cost of acquisition over the fair value
of the Group's share of the identifiable net assets acquired, is capitalised and
reviewed annually for impairment. Goodwill is carried at cost less accumulated
impairment losses.
Revenue
Revenue is measured by reference to the fair value of consideration received or
receivable by the Group for goods supplied and services provided, excluding VAT
and trade discounts. Revenue is recognised upon the performance of services or
transfer of risk to the customer.
Rendering of services relating to processing waste
When the outcome of a transaction involving the processing of waste can be
estimated reliably, revenue associated with the transaction is recognised when
the company receives the waste, being the point at which it fulfils its
contractual obligation to the customer. The outcome of the transaction is deemed
to be able to be estimated reliably when all the following conditions are
satisfied:
• the amount of revenue can be measured reliably.
• it is probable that the economic benefits associated with the transaction
will flow to the entity.
• the company receives the waste, being the point at which it fulfils its
contractual obligation to the customer and
• the costs incurred for the transaction and the costs to complete the
transaction can be measured reliably.
Interest
Interest is recognised using the effective interest method which calculates the
amortised cost of a financial asset and allocates the interest income over the
relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset
to the net carrying amount of the financial asset.
Construction contracts
Contract revenue reflects the contract activity during the year and is measured
at the fair value of consideration received or receivable. When the outcome can
be assessed reliably, contract revenue and associated costs are recognised as
revenue and expenses respectively by reference to the stage of completion of the
contract activity at the balance sheet date. The stage of completion of the
contract at the balance sheet date is assessed by reference to completed key
milestones, those being;
• Design
• Procurement
• Component manufacture
• Enabling works
• Civil Engineering
• Building fabrication
• Mechanical and electrical installation of various components of the TEG
Silo-cage plant
• Functional testing
• Commissioning
Where the outcome of a long term contract cannot be estimated reliably revenue
is recognised only to the extent of contract costs incurred that it is probable
will be recoverable, and contract costs are recognised as an expense in the
period in which they are incurred. In the case of a fixed price contract, the
outcome of a construction contract is deemed to be estimated reliably when all
the following conditions are satisfied:
• total contract revenue can be measured reliably
• it is probable that economic benefits associated with the contract will
flow to the Group
• both the contract costs to complete the contract and the stage of
completion at the balance sheet date can be measured reliably, and
• the contract costs attributable to the contract can be clearly identified
and measured reliably so that actual contract costs incurred can be
compared with prior estimates.
The gross amount due from customers for contract work is presented as an asset
for all contracts in progress for which costs incurred plus recognised profits
(less recognised losses) exceeds progress billings. The gross amount due to
customers for contract work is presented as a liability for all contracts in
progress for which progress billings exceed costs incurred plus recognised
profits (less losses).
Full provision is made for losses on all contracts in the year in which the loss
is first foreseen.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any
provision for impairment. No depreciation is charged during the period of
construction.
Borrowing costs on property, plant and equipment under construction are
capitalised during the period of construction based on specific funds borrowed.
Disposal of assets
The gain or loss arising on the disposal of an asset is determined as the
difference between the disposal proceeds and the carrying amount of the asset
and is recognised in the income statement.
Depreciation
Depreciation is calculated to write down the cost less accumulated depreciation
of all property, plant and equipment other than freehold land over their
estimated useful economic lives. The rates generally applicable are:
Vehicles 3 years straight line
Silo-cage systems 15 years straight line
Fixtures and fittings 25% reducing balance
Plant and machinery 25% reducing balance
Buildings 4% straight line
Impairment testing of goodwill and property, plant and equipment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and some
are tested at cash-generating unit level. Goodwill is allocated to those
cash-generating units that are expected to benefit from synergies of the related
business combination and represent the lowest level within the Group at which
management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that include goodwill
are tested for impairment at least annually. All other individual assets or
cash-generating units are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other assets
in the cash generating unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
Leased assets
In accordance with IAS 17, the economic ownership of a leased asset is
transferred to the lessee if the lessee bears substantially all the risks and
rewards related to the ownership of the leased asset. The related asset is
recognised at the time of inception of the lease at the fair value of the leased
asset or, if lower, the present value of the minimum lease payments plus
incidental payments, if any, to be borne by the lessee. A corresponding amount
is recognised as a finance leasing liability. Leases of land and buildings are
split into land and buildings elements according to the relative fair values of
the leasehold interests at the date of entering into the lease agreement.
The interest element of leasing payments represents a constant proportion of the
capital balance outstanding and is charged to the income statement over the
period of the lease.
All other leases are regarded as operating leases and the payments made under
them are charged to the income statement on a straight line basis over the lease
term. Lease incentives are spread over the term of the lease.
Inventories
Inventories are stated at the lower of cost and net realisable value after
making allowance for obsolete and slow moving items.
Cost includes materials, direct labour and an attributable proportion of
manufacturing overheads based on normal levels of activity. Net realisable value
is based on estimated selling price less further costs expected to be incurred
to completion.
Taxation
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on the
initial recognition of an asset or liability unless the related transaction is a
business combination or affects tax or accounting profit. Deferred tax on
temporary differences associated with shares in subsidiaries and joint ventures
is not provided if reversal of these temporary differences can be controlled by
the Group and it is probable that reversal will not occur in the foreseeable
future. In addition, tax losses available to be carried forward as well as other
income tax credits to the Group are assessed for recognition as deferred tax
assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax
assets are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future
taxable income. Current and deferred tax assets and liabilities are calculated
at tax rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at the balance
sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that are
charged or credited directly to equity (such as the revaluation of land) in
which case the related deferred tax is also charged or credited directly to
equity.
Financial assets
Financial assets are divided into the following categories: loans and
receivables; financial assets at fair value through profit or loss;
available-for-sale financial assets; and held-to-maturity investments. Financial
assets are assigned to the different categories by management on initial
recognition, depending on the purpose for which they were acquired. The
designation of financial assets is re-evaluated at every reporting date at which
a choice of classification or accounting treatment is available.
All financial assets are recognised when the Group becomes a party to the
contractual provisions of the instrument. Financial assets other than those
categorised as at fair value through profit or loss are recognised at fair value
plus transaction costs. Financial assets categorised as at fair value through
profit or loss are recognised initially at fair value with transaction costs
expensed through the income statement.
Financial assets at fair value through profit or loss include financial assets
that are either classified as held for trading or are designated by the entity
as at fair value through profit or loss upon initial recognition. Subsequent to
initial recognition, the financial assets included in this category are measured
at fair value with changes in fair value recognised in the income statement.
Financial assets originally designated as financial assets at fair value through
profit or loss may not be reclassified subsequently.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Loans and
receivables are measured subsequent to initial recognition at amortised cost
using the effective interest method, less provision for impairment. Any change
in their value through impairment or reversal of impairment is recognised in the
income statement.
Provision against trade receivables is made when there is objective evidence
that the Group will not be able to collect all amounts due to it in accordance
with the original terms of those receivables. The amount of the write-down is
determined as the difference between the asset's carrying amount and the present
value of estimated future cash flows.
An assessment for impairment is undertaken at least at each balance sheet date.
A financial asset is derecognised only where the contractual rights to the cash
flows from the asset expire or the financial asset is transferred and that
transfer qualifies for de-recognition. A financial asset is transferred if the
contractual rights to receive the cash flows of the asset have been transferred
or the Group retains the contractual rights to receive the cash flows of the
asset but assumes a contractual obligation to pay the cash flows to one or more
recipients. A financial asset that is transferred qualifies for de-recognition
if the Group transfers substantially all the risks and rewards of ownership of
the asset, or if the Group neither retains nor transfers substantially all the
risks and rewards of ownership but does transfer control of that asset.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets and
are recognised when the Group becomes a party to the contractual provisions of
the instrument. Financial liabilities categorised as at fair value through
profit or loss are recorded initially at fair value, all transaction costs are
recognised immediately in the income statement. All other financial liabilities
are recorded initially at fair value, net of direct issue costs.
Financial liabilities categorised as at fair value through profit or loss are
re-measured at each reporting date at fair value, with changes in fair value
being recognised in the income statement. All other financial liabilities are
recorded at amortised cost using the effective interest method, with
interest-related charges recognised as an expense in finance costs in the income
statement. Finance charges, including premiums payable on settlement or
redemption and direct issue costs, are charged to the income statement on an
accruals basis using the effective interest method and are added to the carrying
amount of the instrument to the extent that they are not settled in the period
in which they arise.
Financial liabilities are categorised as at fair value through profit or loss
where they are classified as held-for-trading or designated as at fair value
through profit or loss on initial recognition.
A financial liability is derecognised only when the obligation is extinguished,
that is, when the obligation is discharged or cancelled or expires.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant risk of
changes in value.
Equity
Equity comprises the following:
• 'Share capital' represents the nominal value of equity shares.
• 'Share premium' represents the excess over nominal value of the fair
value of consideration received for equity shares, net of expenses of the
share issue.
• 'Other reserve' represents equity-settled share-based employee
remuneration until such share options are exercised.
• 'Profit and loss reserve' represents retained profits.
Foreign currency
Transactions in foreign currencies are translated at the exchange rate ruling at
the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the rates of exchange ruling at the balance sheet
date.
Any exchange differences arising on the settlement of monetary items or on
translating monetary items at rates different from those at which they were
initially recorded are recognised in the profit or loss in the period in which
they arise.
Employee benefits - defined contribution pension scheme
The pension costs charged against profits are the contributions payable to the
scheme in respect of the accounting period.
Share-based payment - equity settled
All share-based payment arrangements granted after 7 November 2002 that had not
vested prior to 1 January 2006 are recognised in the financial statements.
All goods and services received in exchange for the grant of any share-based
payment are measured at their fair values. Where employees are rewarded using
share-based payments, the fair values of employees' services are determined
indirectly by reference to the fair value of the instrument granted to the
employee. This fair value is appraised at the grant date.
All equity-settled share-based payments are ultimately recognised as an expense
in the income statement with a corresponding credit to 'other reserve'.
The expense is allocated over the vesting period, based on the best available
estimate of the number of share options expected to vest. Estimates are
subsequently revised if there is any indication that the number of share options
expected to vest differs from previous estimates. Any cumulative adjustment
prior to vesting is recognised in the current period. No adjustment is made to
any expense recognised in prior periods if share options ultimately exercised
are different to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable
transaction costs are credited to share capital, and where appropriate share
premium.
3. Business segments
The principal activity of the Group during the period continued to be the design
and production of Silo-cage plants for sale to third party clients, and the
design, build and operation of TEG owned facilities.
For management purposes, the Group is currently organised into the following
divisions: Build Own Operate facilities and Sale to third party clients.
The revenues and net result generated by each of TEG Group plc's business
segments are summarised as follows:
Revenue Group operating loss
6 months 6 months Year 6 months 6 months Year
ended ended ended ended ended ended
30 June 30 June 31 December 30 June 30 June 31 December
2007 2006 2006 2007 2006 2006
Build own operate 518,219 485,150 885,080 (140,965) (79,148) (300,713)
Sale to third - 585,600 2,650,000 (90,643) 223,900 723,018
parties
Other 17,826 - 24,250 8,669 - 14,529
536,045 1,070,750 3,559,330 (222,939) 144,752 436,834
* Unallocated head office (1,270,898) (740,200) (1,793,476)
expenses
Group operating (1,493,837) (595,448) (1,356,642)
loss
* Unallocated head office expenses include £52,163 (2006:nil) in respect of
future business development costs.
4. Share capital issues
On 23 April 2007, the company placed 10,000,000 new ordinary shares of £0.05 at
a price of £1.10 per share, raising £11,000,000 before issue costs of £628,571.
The difference between the total consideration of £11,000,000 and the total
nominal value of £500,000 and related issue cost of £628,571 has been credited
to the share premium account. In addition, on 30 April 2007 and 3 May 2007,
168,000 and 75,000 shares respectively were issued pursuant to share options
that were exercised at a price of £0.50 and £0.35 respectively.
Shares issued for the period under review may be summarised as follows:
6 months to 30 June 2007
Number £
At 1 January 2007 38,045,381 1,902,269
Issue of shares 10,243,000 512,150
At 30 June 2007 48,288,381 2,414,419
6 months to 30 June 2006
Number £
At 1 January 2006 26,385,381 1,319,269
Issue of shares 11,500,000 575,000
At 30 June 2006 37,885,381 1,894,269
Year to 31 December 2006
Number £
At 1 January 2006 26,385,381 1,319,269
Issue of shares 11,660,000 583,000
At 31 December 2006 38,045,381 1,902,269
5. Loss per share
The loss per share is calculated by reference to the loss attributable to
ordinary shareholders divided by the weighted average of 41,882,939 ordinary
shares for the 6 months to 30 June 2007, 28,926,817 ordinary shares for the 6
months to 30 June 2006, and 33,451,682 for the 12 months to 31 December 2006.
The share options in issue are anti-dilutive in respect of the basic loss per
share calculation and have therefore not been included.
6. Explanation of transition to IFRS
As stated in the 'Basis of preparation', these are the Group's first condensed
consolidated interim financial statements for the part of the period covered by
the first IFRS annual consolidated financial statements prepared in accordance
with the measurement and recognition rules of IFRS.
An explanation of how the transition from UK GAAP to IFRS has affected the
Group's financial position, financial performance and cash flows is set out
below.
IFRS 1 permits companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. These
interim financial statements have been prepared on the basis of taking the
following exemptions:
• business combinations prior to 1 January 2006, the Group's date of
transition have not been restated to comply with IFRS 3 'Business
Combinations'.
Explanation of reconciliation from UK GAAP to IFRS for the balance sheet and
income statement
The adoption of IFRS by the Group has resulted in some reordering of the
presentation of certain balances within both the income statement and balance
sheet.
Goodwill recognised by the Group on the acquisition of the composting business
in Perthshire under UK GAAP was amortised over a period of 11 years. Under IFRS,
goodwill is not amortised, but tested annually for impairment. The goodwill
amortisation charge recognised in accordance with UK GAAP in 2006 was written
back.
Borrowing costs incurred with regards to the development of the Todmorden
facility under UK GAAP were recognised as interest expense incurred. Under IFRS,
borrowing costs which are directly attributable to the acquisition, construction
or production of a qualifying asset have been capitalised. This includes
interest on borrowings made specifically for the purpose of obtaining the
qualifying assets.
Application of IFRS has resulted in reclassification of certain items in the
cash flow statement as follows:
1) Under UK GAAP, payments to acquire property, plant and equipment were
classified as part of 'Capital expenditure and financial investment'. Under
IFRS, payments to acquire property, plant and equipment have been classified as
part of 'Investing activities'.
2) Income taxes received by the Group in respect of Research and Development tax
credits are now classified as an operating cash flow under IFRS, however these
were included in a separate category of tax cash flows under UK GAAP.
3) There are no other material differences between the cash flow statement
presented under IFRS and the cash flow statement presented under UK GAAP.
Reconciliation of equity at 1 January 2006 (date of transition to IFRS)
UK GAAP IFRS
ASSETS
Non-current assets
Property, plant and equipment 1,093,289 1,093,289
Goodwill 2,269,584 2,269,584
3,362,873 3,362,873
Current assets
Inventories 123,070 123,070
Trade and other receivables 366,408 366,408
Taxation receivable 63,573 63,573
Cash and cash equivalents 2,414,392 2,414,392
2,967,443 2,967,443
Total assets 6,330,316 6,330,316
LIABILITIES
Current liabilities
Trade and other payables 1,033,429 1,033,429
Current portion of long-term borrowings 22,396 22,396
Current portion of deferred 283,019 283,019
consideration
1,338,844 1,338,844
Non-current liabilities
Long-term borrowings 13,797 13,797
Long-term deferred consideration 1,944,847 1,944,847
1,958,644 1,958,644
Total liabilities 3,297,488 3,297,488
Net assets / liabilities 3,032,828 3,032,828
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent
Share capital 1,319,269 1,319,269
Share premium 12,309,993 12,309,993
Other reserves 153,197 153,197
Profit and loss account - deficit (10,749,631) (10,749,631)
Total equity 3,032,828 3,032,828
Investment in shares of subsidiaries of £2 in the parent company financial
statements of TEG Group Plc as at 1 January 2006 has been eliminated for the
preparation of the consolidated financial statements.
Reconciliation of loss for the year ended 31 December 2006
UK GAAP Goodwill Interest IFRS
2006 IFRS 3 IAS 23 2006
£ £ £ £
Revenue 3,559,330 3,559,330
Cost of sales (2,951,551) (2,951,551)
Gross profit 607,780 607,780
Other expenses (2,177,194) 212,772 (1,964,422)
Operating result (1,569,414) 212,772 (1,356,642)
Finance costs (145,481) 29,934 (115,547)
Finance income 154,579 154,579
Loss before tax (1,560,316) 212,772 29,934 (1,317,610)
Income tax 60,663 60,663
Loss for the year (1,499,653) 212,772 29,934 (1,256,947)
Attributable to:
Equity holders of the (1,499,653) 212,772 29,934 (1,256,947)
parent
Retained loss (1,499,653) 212,772 29,934 (1,256,947)
Loss per share
Basic and diluted (4.483) 0.636 0.089 (3.757)
loss per share
(pence)
Reconciliation of equity at 31 December 2006
UK GAAP Goodwill Interest IFRS
2006 IFRS 3 IAS 23 2006
£ £ £ £
ASSETS
Non-current assets
Property, plant and equipment 7,564,337 29,934 7,594,271
Goodwill 2,056,812 212,772 2,269,584
9,621,149 212,772 29,934 9,863,855
Current assets
Inventories 355,638 355,638
Trade and other receivables 647,648 647,648
Taxation receivable 60,663 60,663
Cash and cash equivalents 2,242,554 2,242,554
3,306,503 3,306,503
Total assets 12,927,652 212,772 29,934 13,170,358
LIABILITIES
Current liabilities
Trade and other payables 1,154,761 1,154,761
Current portion of long-term borrowings 155,790 155,790
Current portion of deferred 266,999 266,999
consideration
1,577,550 1,577,550
Non-current liabilities
Long-term borrowings 213,000 213,000
Long-term deferred consideration 1,769,941 1,769,941
1,982,941 1,982,941
Total liabilities 3,560,491 3,560,491
Net assets / liabilities 9,367,161 212,772 29,934 9,609,867
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent
Share capital 1,902,269 1,902,269
Share premium 19,387,544 19,387,544
Other reserves 326,632 326,632
Profit and loss account - deficit (12,249,284) 212,772 29,934 (12,006,578)
Total equity 9,367,161 212,772 29,934 9,609,867
Investment in shares of subsidiaries of £2 in the parent company financial
statements of TEG Group Plc as at 1 January 2006 has been eliminated for the
preparation of the consolidated financial statements.
Reconciliation of loss for the six months ended 30 June 2006
UK GAAP Goodwill IFRS
2006 IFRS 3 2006
£ £ £
Revenue 1,070,750 1,070,750
Cost of sales (838,496) (838,496)
Gross profit 232,254 232,254
Other expenses (934,088) 106,386 (827,702)
Operating result (701,834) 106,386 (595,448)
Finance costs (57,409) (57,409)
Finance income 50,509 50,509
Loss before tax (708,734) 106,386 (602,348)
Income tax - -
Loss for the period (708,734) 106,386 (602,348)
Attributable to:
Equity holders of the (708,734) 106,386 (602,348)
parent
Retained loss (708,734) 106,386 (602,348)
Loss per share
Basic and diluted loss (2.450) 0.368 (2.082)
per share (pence)
Reconciliation of equity at 30 June 2006
UK GAAP Goodwill IFRS
2006 IFRS 3 2006
£ £ £
ASSETS
Non-current assets
Property, plant and equipment 4,915,181 4,915,181
Goodwill 2,163,198 106,386 2,269,584
7,078,379 106,386 7,184,765
Current assets
Inventories 355,833 355,833
Trade and other receivables 394,549 394,549
Taxation receivable 63,573 63,573
Cash and cash equivalents 5,467,677 5,467,677
6,281,632 6,281,632
Total assets 13,360,011 106,386 13,466,397
LIABILITIES
Current liabilities
Trade and other payables 770,412 770,412
Current portion of long-term borrowings 161,547 161,547
Current portion of deferred 266,999 266,999
consideration
1,198,958 1,198,958
Non-current liabilities
Long-term borrowings 288,976 288,976
Long-term deferred consideration 1,866,901 1,866,901
2,155,877 2,155,877
Total liabilities 3,354,835 3,354,835
Net assets / liabilities 10,005,176 106,386 10,111,562
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent
Share capital 1,894,269 1,894,269
Share premium 19,339,544 19,339,544
Other reserves 229,728 229,728
Profit and loss account - deficit (11,458,365) 106,386 (11,351,979)
Total equity 10,005,176 106,386 10,111,562
Investment in shares of subsidiaries of £2 in the parent company financial
statements of TEG Group Plc as at 1 January 2006 has been eliminated for the
preparation of the consolidated financial statements.
Independent Review Report to TEG GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises the consolidated condensed
income statement, the consolidated condensed balance sheet, consolidated
condensed statement of changes in equity, the consolidated condensed cash flow
statement and the related notes 1 to 6. We have read the other information
contained in the interim report which comprises only the chairman's statement
and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with guidance contained
in APB Bulletin 1999/4 'Review of Interim Financial Information'. Our review
work has been undertaken so that we might state to the company those matters we
are required to state to them in a review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this report, or for
the conclusion we have formed.
Directors' responsibilities
The interim report including the financial information contained therein is the
responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the interim report.
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with International Financial Reporting Standards as
adopted by the European Union. The accounting policies are consistent with those
that the directors intend to use in the next annual financial statements.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of Interim Financial Information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of management and applying analytical procedures to the financial information
and underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007 .
GRANT THORNTON UK LLP
CHARTERED ACCOUNTANTS
Manchester
24 September 2007
The maintenance and integrity of the TEG Group plc website is the responsibility
of the directors: the interim review does not involve consideration of these
matters and, accordingly, the company's reporting accountants accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website. Legislation in the United
Kingdom governing the preparation and dissemination of the interim report differ
from legislation in other jurisdictions.
This information is provided by RNS
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