Placing and Open Offer

RNS Number : 7396I

TEG Group (The) PLC

20 June 2011

 



20 June 2011

The TEG GROUP PLC (AIM: TEG)

("TEG" or "the Company")

THIS ANNOUNCEMENT (AND THE INFORMATION CONTAINED HEREIN) IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, REPUBLIC OF SOUTH AFRICA OR JAPAN OR ANY JURISDICTION IN WHICH SUCH PUBLICATION OR DISTRIBUTION IS UNLAWFUL

Placing and Open Offer and Notice of General Meeting

The TEG Group PLC, the AIM listed cutting edge green technology company, which develops and operates organic composting and energy plants, is pleased to announce a Placing and an Open Offer to raise up to approximately £3.8 million. 

The Company announces that it has placed 30,766,850 New Ordinary Shares at a price of 10p per share to raise gross proceeds of approximately £3.0 million which was arranged by Ambrian Partners Limited ("Ambrian") with institutional investors. In addition the Company announces an Open Offer of New Ordinary Shares to its Shareholders on the basis of 1 New Ordinary Share for every 10 Existing Ordinary Shares held at a price of 10p. Should it be fully subscribed, the Open Offer will generate gross proceeds of approximately £0.8 million to the Company.

The Placing and the Open Offer are conditional upon, amongst other things, the passing of Resolutions by the members of the Company at a General Meeting.

In order to implement the Placing and the Open Offer, the Directors will need authority from the Shareholders to allot the New Ordinary Shares and to dis-apply statutory pre-emption rights in respect of the Placing Shares. A circular setting out details of the Placing and the Open Offer and containing the notice of General Meeting will be sent to Shareholders later today.

 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 and Broker)	Tel : [phone]
Andrew Craig / Ben Wright

The Placing and the Open Offer

The Company proposes to raise approximately £3.0 million by way of a placing by Ambrian of 30,766,850 new Ordinary Shares at the Issue Price. The Placing Shares will comprise 26.8 per cent. of the Enlarged Share Capital following Admission (assuming the Open Offer is subscribed in full). The Placing is conditional, amongst other things, on the passing of the Resolutions at the General Meeting and Admission. It is anticipated that Admission will occur and trading in the Placing Shares will commence on 8 July 2011. The Placing is not conditional on the Open Offer being fully subscribed.

The Placing has been supported by a number of new and existing institutional shareholders and the Directors believe that the support of these institutions demonstrates confidence in TEG and the Directors' plans for the future development of the Group.

In addition to the Placing, the Board considers it important that Qualifying Shareholders have an opportunity to participate in the fundraising, and the Directors have concluded that the Open Offer is the most suitable option available to the Company and its Shareholders.

Pursuant to the Open Offer, Qualifying Shareholders will be given the opportunity to subscribe for up to, in aggregate, 1 Open Offer Share for every 10 Existing Ordinary Shares held on the Record Date.

It is expected that the Placing and the Open Offer will raise gross proceeds of up to approximately £3.8 million assuming full subscription under the Open Offer. Net proceeds to the Company will be approximately £3.7 m.

The Issue Price represents a 57 per cent. discount to the closing price mid-market price of 23.5p per Ordinary Share on 17 June 2011 (being the latest practicable date prior to the posting of the Circular).

Background to the Placing and the Open Offer

In 2009, TEG was awarded a contract for the provision of four TEG IVC silo cage facilities to the Greater Manchester Waste Authority with an aggregate value of £38 million over three years and a total capacity of 175 ktpa. This followed an Advanced Works Order that was issued in 2008.

Progress on the facilities has been as follows:

The first site in Rochdale has been in operation since November 2009 and the plant has operated satisfactorily since handover. The warranty and snagging period was due to be completed by November 2010, but before final acceptance of the plant a number of snagging issues were raised that require resolution. This is expected to be completed in the first half of 2011.

Construction was completed on the second site in Bredbury in August 2010 and the plant was commissioned in the first quarter of 2011. Formal "Take Over" has now been agreed with the Client effective from February 2011.

The third site in Trafford, was constructed to schedule and commissioning is currently on schedule. The Company expects handover of the Trafford site to take place during the third quarter of 2011.

There are a number of payments and retentions relating to the three facilities that are now significantly overdue. These relate to various items including acceptance retentions, the return of liquidated damages relating to take over and disputes over payments for variations to initial scope of works. At present these payments amount to approximately £0.9 million.

TEG believes these payments are all properly due and is making considerable efforts to resolve all outstanding issues and to secure their release. Issues relating to the release of approximately one third have recently been resolved and payment is expected to follow in due course.

It had been anticipated by the Company that the ITP for the construction of the fourth site in Bolton would be issued in the second quarter of 2010 and though this was initially delayed, the Company had planned for its receipt in the fourth quarter of 2010. TEG announced on 6 January 2011 that it had not received the ITP as the Authority had been unable to complete all its necessary site investigations, partly due to delays caused by severe weather in the latter part of the year. Despite the delays, TEG anticipated that the site investigation works would be completed and the ITP issued in the first half of 2011.

Up until early May 2011, TEG had understood that the SPV would issue the ITP imminently once the site was secured and revised project costs agreed. The SPV subsequently informed the Company in May 2011 that it was reconsidering whether or not to proceed with the construction of the fourth site pending a review it was undertaking into the need for the facility. The Company expects under its contract with the Client that an ITP will be issued to allow the construction programme to commence but the timing of the decision to issue the ITP is not within TEG's control. If the SPV chooses not to proceed, TEG will claim for compensation under its contract with the Client.

TEG has made considerable efforts to secure the ITP and resolve the cash retention issues with all contractual parties and significant progress has been made and agreement reached on a number of items. Internally, TEG has implemented a cost reduction programme across the Group by implementing delayed payment terms with a number of suppliers and commencing a number of cost reduction measures. In the event that the fourth project does not proceed TEG has prepared plans for staff redundancy measures. The Directors agreed to reduce salary and pension benefits in May 2010.

The delay in receiving the ITP has had a significant impact on cashflow as TEG has "carried" a significant project and overhead costs in anticipation of the ITP since the second quarter of 2010. The Company had also expected a significant cash injection in the first half of 2011 from the order for the fourth site.

In addition to the delay, significant sums of monies owed to the Company have been withheld, as described above, and this has further compounded the Company's cashflow problems. As such, and with continuing uncertainty around the timing at which the monies subject to retention will be released, and at which time the ITP may be awarded, the Directors believe that it is prudent, and in the best interests of its Shareholders to proceed with the Placing and the Open Offer at this time. When the retentions are released to the Company, and the ITP award and payment made, these sums will be used to fund the plant roll-out programme of the Company, accretive acquisitions and for general working capital purposes.

Current Trading and Prospects

TEG currently owns and operates three IVC facilities, being:

Facility                                                         Capacity

·     Perth                                              37 thousand tonnes per annum ("ktpa")

·     Todmorden                                     37 ktpa

·     Carleton Rode                                 37 kpta

In addition, TEG operates six open windrow facilities acquired as part of the acquisition of Simpro Limited in 2010. Together these are known as the "TEG BOO plants".

TEG BOO Plants

Performance of the Group's BOO plants during the year to date has been very good. Revenues and profits have increased significantly compared to the same period in 2010 and the TEG BOO plants are ahead of budget both in terms of revenues and profits. Gate fees have increased compared to the same period in 2010 and TEG has secured significant further waste business in 2011. The Company has observed significant growth in volume of waste and its facilities are operating to capacity.

TEG completed extensive improvement works in 2010 to the environmental control systems to meet the requirements of new Defra guidance issued in 2009. These works were completed satisfactorily and the environmental performance of TEG's facilities has been excellent to date in 2011.

The Board is very pleased with the integration of the Simpro business into the Group, which has proceeded to schedule.

Third Party Sales

TEG has constructed and sold six further IVC plants to third parties, being:

	Location	Capacity
•	Swansea	7 ktpa
•	Gwynedd	6 ktpa
•	Exeter	14 ktpa
•	Rochdale	25 ktpa
•	Bredbury	54 ktpa
•	Trafford	50 ktpa

The Board believes that TEG has a competitive advantage in the market place as TEG is well established with more plants than any other technology provider, has a high quality management team and is a proven operator with proven technology. TEG's Silo Cage technology has full animal by-product approval, and is a continuous, single pass operation.

The plant offers very good environmental control and the Board believes it is well positioned to benefit from the increasing focus on raising industry standards with an Environmental Agency hardened policy on containment.

The technology also offers low process energy costs and a small carbon footprint. It produces consistent, high quality end product (all plants have achieved PAS 100) and it has a small process footprint.

Anaerobic Digestion

TEG is constructing its first AD plant at its site in Perth, which is due for completion in the third quarter of 2011.

TEG has formed collaboration agreements with UTS and Alkane to develop AD facilities in the UK. The UK Government has highlighted the potential for AD as a form of renewable energy, whether as electricity or as a captured methane fuel and the Government is committed to encouraging a significant growth in the use of AD. The Board believes that the collaboration agreements together with its proven IVC technology offers a competitive advantage in the emerging AD market.

Current market conditions

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. LFT continues to rise annually; LFT rose by £8.00 per tonne in April 2011 increasing the tax to a total of £56.00 per tonne. The UK Government has confirmed that LFT will rise by £8.00 per tonne per annum until at least 2014/2015. 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.

Following the Government's Comprehensive Spending Review, a short term reduction was observed in some waste streams but this appears to have been short lived and the volume of waste secured has grown significantly. Some Local Authorities have delayed implementation of new collection rounds for segregated waste streams to reduce expenditure, but this is considered by the Company to be localised and appears to have been offset by overall increases elsewhere. As anticipated by the Company and previously reported, TEG has noted a continued change in procurement policy by Local Authorities with emphasis on 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 has secured provisional funding for a number of these projects. The Board will continue to evaluate these opportunities on a case by case basis.

TEG has also noted a 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 way of subsidy for sales of power in the form of either ROCs or FITs. The level of subsidy available through ROCs and FITs for existing schemes has been determined by the Government.

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

The Directors believe that the longer term regulatory environment will also 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 will take effect in the fourth quarter of 2011. This is expected to increase the volume of green waste diverted into the composting sector.

Business Strategy

TEG continues to target growth through:

·        Build own and operate projects - these provide sustainable, long term revenues which service the waste outsourcing market while allowing the Company to take advantage of rising prices;

·        Third party sales - these provide large revenues to the Company and services the participants in the market preferring to make capital investments (including the PFI market);

·        IVC and AD technologies - the Company believes that AD offers both defence and opportunities for growth to the Company.

In addition, the Directors believe that, as a function of the Company's scale and the current financial market, opportunities for complimentary acquisitions are growing. The success of the acquisitions of Simpro and Banham demonstrates the opportunities that exist in the market and the Company has identified a number of complimentary, regional businesses as potential targets. The Directors have also identified opportunities for expansion into the related renewable energy markets.

The Directors believe that Local Authority activity throughout the UK is greater than ever, with a particular focus on Wales, the Midlands and London/South East and the Company continues to target these Local Authorities and major waste management companies with long term supply agreements to lock in cashflows. These enhance the Company's ability to obtain project and debt finance.

Project Pipeline

TEG has a strong pipeline of projects and is progressing a further number of high priority BOO projects that if successful would be expected to come to fruition within the next one to three years. These include projects on some of the Simpro sites. The Group anticipates that a number of these will move into construction in 2011 and 2012. Local Authority procurement activity levels remain high and in addition to supporting further PFI projects, TEG is actively progressing a number of build, own and operate projects. These projects include a number of tenders directly to Local Authorities whereby TEG is bidding to construct plants in return for securing long term waste supply contracts.

The projects under development by TEG include both IVC and AD facilities and the Group has already announced that it is developing a project in Dagenham, East London. This project has been awarded £1.9m in debt funding from London Waste and Recycling Board and TEG has secured provisional funding for the balance of the capital required.

In addition, TEG is bidding for a number of Local Authority contracts including certain hubs in the Welsh Assembly Government procurement process. Some of these contracts are expected to be determined in 2011 and TEG believes it is strongly placed to secure a number of these, where it is already through initial qualification.

Finally, TEG is progressing a significant number of further tenders at various stages of development for plant sales in addition to those previously announced to the market.

Use of Proceeds

The cashflow from the contract for the fourth site would have been used for seed funding for the future projects, including the Dagenham project, and for general working capital. In order to secure these projects, which TEG is in prime position to win, TEG must demonstrate a certain level of free working capital. The proceeds of the Placing and the Open Offer would provide the Company with short term working capital during this period until cashflows from the Manchester projects and the new projects are secured.

Should the Placing and the Open Offer not proceed, the contract retentions not be forthcoming and/or the ITP not be awarded, the Directors would expect to need to review the continuing operations of the business. Should the ITP not be made before 30 June 2011, the Directors believe that they will need to review the performance of the Company against current market expectations.

The Open Offer

Qualifying Shareholders are being given the opportunity, on and subject to the terms and conditions of the Open Offer, to apply for any number of Open Offer Shares (subject to the limit on the number of Excess Shares that can be applied for using the Excess Application Facility) at the Issue Price. Qualifying Shareholders have a Basic Entitlement of 1 Open Offer Share for every 10 Existing Ordinary Shares registered in the name of the relevant Qualifying Shareholder on the Record Date.

Basic Entitlements under the Open Offer will be rounded down to the nearest whole number and any fractional entitlements to Open Offer Shares will be disregarded in calculating Basic Entitlements and will be aggregated and made available to Qualifying Shareholders under the Excess Application Facility. Qualifying Shareholders with fewer than 10 Existing Ordinary Shares will not be able to apply for Excess Shares pursuant to the Excess Application Facility.

In the event that valid acceptances are not received in respect of any of the Open Offer Shares under the Open Offer, unallocated Open Offer Shares will be allotted to Qualifying Shareholders to meet any valid applications under the Excess Application Facility.

The aggregate number of Open Offer Shares available for subscription pursuant to the Open Offer will not exceed 7,622,635 Ordinary Shares.

Further details of the Open Offer will be set out in the Circular and accompanying Application Form.

The Placing and the Open Offer are conditional, amongst other things, on the passing of the Resolutions at the General Meeting and Admission. It is anticipated that Admission will occur and trading in the New Ordinary Shares will commence on 8 July 2011.

Application for Admission

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. Subject to, among other things, the Resolutions being passed, it is expected that Admission will occur and trading in the New Ordinary Shares will commence at 8.00 a.m. on 8 July 2011. No temporary documents of title will be issued.

The New Ordinary Shares will, following Admission, rank pari passu in all respects with the Existing Ordinary Shares in issue at the date of this announcement and will carry the right to receive all dividends and distributions declared, made or paid on or in respect of the Ordinary Shares after Admission.

Important notice

Shareholders should note that the Open Offer is not a rights issue. Qualifying Shareholders should be aware that in the Open Offer, unlike with a rights issue, any Open Offer Shares not applied for by Qualifying Shareholders under their Basic Entitlements will not be sold in the market on behalf of, or placed for the benefit of Qualifying Shareholders who do not apply under the Open Offer, but may be allotted to Qualifying Shareholders to meet any valid applications under the Excess Application Facility and that the net proceeds will be retained for the benefit of the Company.

Effect of the Placing and the Open Offer

Upon completion of the Placing and the Open Offer, the New Ordinary Shares will represent approximately 33.5per cent., of the Enlarged Share Capital (assuming the Open Offer is subscribed in full).

Following the issue of the New Ordinary Shares (assuming the Open Offer is subscribed in full), a Qualifying Shareholder who does not take up any of his Basic Entitlement (and who therefore does not take up any Excess Shares under the Excess Application Facility) will suffer a dilution of approximately 33.5 per cent., to his economic interests in the Company. If a Qualifying Shareholder subscribes for his Basic Entitlement in full but does not take up any Excess Shares under the Excess Application Facility, he will suffer a dilution of approximately 26.8 per cent. to his economic interests in the Company (assuming the Open Offer is subscribed in full).

General Meeting

A circular containing a notice of a General Meeting of the Company and setting out the Resolutions, convening a General Meeting for 12.00 p.m. on 6 July 2011 at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, PR7 7NA will today be posted to shareholders of the Company outlining the terms of the Placing and the Open Offer and seeking authority from Shareholders to issue and allot the New Ordinary Shares.

If the Resolutions are not passed, the conditions of the Placing Agreement will not be satisfied and the Placing and the Open Offer will not occur.

Related Party Transaction

Bridges Ventures Fund II ("Bridges") has agreed to subscribe for 6,559,440 new Ordinary Shares pursuant to the Placing. As Bridges is a substantial shareholder of the Company, this transaction constitutes a related party transaction under rule 13 of the AIM Rules.

The Directors (excluding Ian Hislop, given his relationship to Bridges) consider, having consulted with the Company's Nominated Adviser, Ambrian, that the terms of Bridges' participation in the Placing are fair and reasonable in so far as its Shareholders are concerned.

Recommendation and Voting Intentions

The Directors believe that the Placing and the Open Offer are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend that you vote in favour of the Resolutions as they and Shareholders connected with them intend to do in respect of their aggregate beneficial holdings of 938,380 Ordinary Shares representing approximately 1.2 per cent. of the Existing Ordinary Shares.

In addition, the Directors have agreed to subscribe for at least 93,838 Open Offer Shares pursuant to the Open Offer.

DEFINITIONS AND GLOSSARY

The following definitions apply throughout this announcement:

"AD"	anaerobic digestion;
"Admission"	admission of the New Ordinary Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules;
"AIM"	the market of that name operated by the London Stock Exchange;
"AIM Rules"	the "AIM Rules for Companies" published by the London Stock Exchange as in force at the date of this announcement or, where the content requires, as amended or modified after the date of this announcement;
"Alkane"	Alkane Energy PLC
"Ambrian"	Ambrian Partners Limited, a division of Ambrian Capital PLC, the Company's Nominated Adviser and Broker;
"Application Form"	the application form accompanying the Circular to be used by Qualifying Shareholders in connection with the Open Offer;
"Authority"	Greater Manchester Waste Authority;
"Basic Entitlement"	the Open Offer Shares which a Qualifying Shareholder is entitled to subscribe for under the Open Offer calculated on the basis of 1 Open Offer Share for every 10 Existing Ordinary Shares held by that Qualifying Shareholder as at the Record Date;
"Board" or "Directors"	the board of directors of the Company;
"BOO"	build, own and operate;
"Circular"	the circular to be dated 20 June 2011;
"the Client"	Costain Group PLC;
"Company" or "TEG"	The TEG Group plc;
"CREST"	the system for paperless settlement of trades and the holding of uncertificated shares administered through Euroclear;
"Enlarged Share Capital"	the Existing Ordinary Shares and the New Ordinary Shares;
"Excess Application Facility"	the mechanism whereby a Qualifying Shareholder can apply for Excess Shares up to an amount equal to the total number of Open Offer Shares available under the Open Offer less an amount equal to a Qualifying Shareholder's Basic Entitlement, as more fully set out in Part II of the Circular;
"Excess Shares"	the Open Offer Shares which a Qualifying Shareholder is entitled to apply for in addition to their Basic Entitlement by virtue of the Excess Application Facility;
"Existing Ordinary Shares"	the 76,226,345 Ordinary Shares in issue at the date of this announcement;
"Euroclear"	Euroclear UK & Ireland Limited;
"FITs"	Feed in tariff;
"FSA"	the UK Financial Services Authority;
"General Meeting" or "GM"	the general meeting of the Company to be held at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, PR7 7NA at 12.00 p.m. on 6 July 2011, notice of which is set out at the end of the Circular;
"Group"	the Company and its subsidiary undertakings at the date of this announcement;
"Issue Price"	10p per new Ordinary Share;
"ITP"	instruction to proceed;
"IVC"	in vessel composting;
"LFT"	any tax on the disposal of material as waste made by way of landfill site charged pursuant to section 40 Finance Act 1996;
"New Ordinary Shares"	the Placing Shares to be issued pursuant to the Placing and the Open Offer Shares to be issued pursuant to the Open Offer;
"Ordinary Shares"	ordinary shares of 5p each in the capital of the Company;
"Open Offer"	an entitlement to subscribe for Open Offer Shares, allocated to a Qualifying Shareholder pursuant to the Open Offer;
"Open Offer Shares"	the 7,622,635 new Ordinary Shares which are to be made available for subscription by Qualifying Shareholders under the Open Offer;
"Placing"	the conditional placing by Ambrian of the Placing Shares at the Issue Price;
"Placing Agreement"	the conditional agreement dated 20 June 2011 between (1) The TEG Group PLC and (2) Ambrian;
"Placing Shares"	the 30,766,850 new Ordinary Shares conditionally placed by Ambrian pursuant to the Placing;
"Qualifying Shareholders"	holders of Existing Ordinary Shares at the Record Date;
"Record Date"	the close of business on 17 June 2011;
"Resolutions"	the special resolution and the ordinary resolution to be proposed at the General Meeting in connection with the Placing and the Open Offer;
"ROCs"	Renewable Obligations Certificate;
"Shareholders"	holders of Ordinary Shares;
"SPV"	Viridor Laing;
"UK"	the United Kingdom of England, Scotland, Wales and Northern Ireland.

 

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