TEN ENTERTAINMENT GROUP PLC — Earnings Release 2012

Mar 18, 2013

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RNS Number : 1784A

TEG Group (The) PLC

18 March 2013

For release	07:00	18 March 2013

The TEG GROUP PLC (AIM: TEG)

("TEG" or "the Group")

PRELIMINARY RESULTS

The TEG Group PLC, the AIM listed green technology company, which develops and operates organic composting and energy plants, announces its preliminary results for the year ended 31 December 2012.

"Strong Second Half Recovery Sees Return to Growth

and Significant Progress"

Highlights

Financial

·     Results ahead of market expectations

·     Strong performance in second half of the year with return to growth and significantly improved performance over the prior period

·     Full year revenue £22,418,000 (2011: £17,871,000)

·     Gross profit £4,614,000 (2011: £4,480,000) 

·     Loss before tax and exceptional costs £1,128,000 (2011: £1,740,000)

·     Group cash balance as at 31 December 2012 £3,674,000 (2011: £1,557,000)

·     No dividend is recommended

Operations

·     £16m Dagenham plant is a flagship project for the Group securing construction and 15 year O&M contracted revenues.

·     Perth AD Facility operating very successfully with power output currently ahead of design capacity

·     TEG's wholly-owned plant operations performed impressively with substantially increased productivity and utilisation seen over period with strongly improved margins

·     Post year-end, TEG awarded a six-year contract for organic waste by a major waste management company

Commenting, Rory Maw, Non-Executive Chairman, TEG Group Plc, said:

"The financial close of the Dagenham project was a significant milestone for the Group and market demand for more capacity remains strong.  Furthermore, the Company's move into the renewable energy sector is proceeding very well."    

"The excellent performance of the Group's own plant operations and the continued growth in this segment demonstrate that if TEG can secure the appropriate level of capital funding it will develop a secure and successful operating platform."

- ENDS -

Contact:
The TEG Group Plc	Tel: 01772 644980
Michael Fishwick, Chief Executive	www.theteggroup.plc.uk
Peckwater PR	Tel: 07879 458 364
Tarquin Edwards	tarquin.edwards@peckwaterpr.co.uk
N+1 Singer Advisory LLP (Nomad & Broker)	Tel: 0207 496 3000
Andrew Craig/Ben Wright

Editor's Notes:

TEG

TEG provides state of the art technology for handling organic wastes.  Its in-vessel composting ("IVC") system is one of the few approved technologies capable of treating animal by-product ("ABP") waste and it is now providing an anaerobic digestion ("AD") technology to produce power from food waste.  Plant economics are predominantly driven by the gate fees charged, rather than the value of the end product (compost).  The AD plants also benefit from power sales and Renewable Obligations Certificates ("ROCS") or Feed-in Tariffs ("FITs").  TEG owns its composting technology, the TEG Silo Cage System, and has an agreement with UTS Biogastechnik GmbH ("UTS") for the provision of AD technology into the UK waste markets.  The TEG processes are an economic and sustainable alternative to landfill.

The TEG Silo Cage System

The Silo Cage system, one of the few technologies capable of treating organic waste, is a natural process producing compost as an end product.  The compost is an excellent soil conditioner that fertilises, retains moisture, provides structure and reduces the incidence of plant disease.  TEG's Silo-Cages are housed in self-contained buildings, suitable for urban environments, are not unsightly and are environmentally friendly.

Collaboration with UTS

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

TEG Biogas (Perth) Limited

TEG Biogas (Perth) Limited ("TEG Biogas Perth") is a joint venture company established by TEG with Albion LLP.  TEG Biogas Perth is constructing a 15,000 tonnes per annum AD plant at TEG's Glenfarg site to produce nominally 0.7MW of electrical power and 0.2MW of heat that is to be used by Binn Eco Park.  The facility has been in operation, generating revenues from waste sales and power generation since Quarter 1 of 2012.

General

Customers include local authorities, waste management companies, food processing companies, 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. 

Chairman’s statement

I am delighted to present the Group's preliminary results for the year ended 31 December 2012.  The second half of the year saw a marked improvement in trading.  Both revenues and profitability improved significantly on the half year position reported in September 2012 and I am pleased to be able to report that the Group returned to growth and is again making significant progress. 

Full year revenue for 2012 was £22,418,000 (2011: £17,871,000) and the Group loss was £1,037,000 (2011: £7,616,000).  Overall, the Group recorded a gross profit of £4,614,000 (2011 £4,480,000).  No dividend is recommended.

The Group cash balance as at 31 December 2012 was £3,674,000 (2011: £1,557,000).

Group Plant Operations

Revenues and profit margins at the Group's own plant operations have continued to grow impressively in 2012.  This reflects substantially increased productivity and utilisation from TEG's operating facilities, the continuous growth in the organics sector of the waste market together with some reduction in competitor capacity following stricter regulatory enforcement.

Operational revenues grew by 16% in 2012 compared to 2011, with a 42% increase in gross margin.  The volume of food based waste, including co-collected food and green waste, grew by approximately 24%.  Pure green waste volumes recovered strongly in the second half of 2012 and overall grew by 17% on 2011. 

Since the year end, the Group has entered into a six year organic waste contract with a major waste management company.  This will increase waste volume for the Simpro business by approximately 15,000 tonnes per annum. 

Greater Manchester Waste PFI Contract

Construction of the fourth and final facility (Bolton) is progressing well and will continue until Quarter 2 of 2013, with commissioning and handover scheduled for completion in Quarter 3 of 2013.

TEG has successfully achieved take over on all three facilities constructed to date, and all are in full operation.  Acceptance of the facilities has still to be achieved and a total of £1.5m of retentions specific to those three facilities remain outstanding.  The Group continues to work towards securing their release.

Perth AD Facility - ("TEG Biogas Perth")

The Company's move into the renewable energy sector is proceeding very well.  Commissioning of the Perth AD facility was highly successful and the plant is in full operation with power output currently ahead of design capacity.  The plant will process 15,000 tonnes per annum of food waste and generate approximately 0.7MW of electricity and 0.2 MW of heat, to be utilised on site in the Binn Eco Park development.  Ofgem has accredited the facility to receive Renewable Obligation Certificates ("ROCs") and as an AD facility it will be eligible for double ROCs (i.e. 2 ROCs for each unit of electrical output).  The project is funded by Albion Ventures LLP ("Albion") and Zero Waste Scotland. The Group retains a 50% shareholding in the Company.

Dagenham Project

The Group was delighted to reach financial close on its Dagenham project on 31 August 2012, a combined IVC") and AD facility. This project will bring approximately £16m in revenues to the Group from an engineering, procurement and construction ("EPC") contract and a further £1.3m per annum of operating revenues (escalated annually) over the term of a 15-year operating and maintenance contract.  In addition, the Group retains a 24.5% shareholding in the newly created project company, TEG Biogas (London) Limited.

The project funding was secured by the Foresight Group, who also attracted co-funding from other equity funders and investment banking, along with both UK and regional Government funding, including the UK GIB. Revenues under the EPC contract commenced in the second half of the year with payments received on a milestone basis.  The remaining revenues will be recognised on a milestone basis over the remaining construction period.  Construction remains on programme for commissioning of the plant in quarter 3 of 2013 and handover in quarter 1 of 2014.

Strategic Activities

Following the success with funding the Dagenham project, the Group continues to investigate further similar investments at the operating company and project level and is in discussion with other potential investors. Planning permission is in place for the development of a similar facility to the Dagenham plant, combined IVC and AD, on one of TEG's Simpro facilities.  Funding proposals have been received and options are under active consideration.

Work has started on increasing capacity at the Todmorden facility to meet demand in the region.  In addition, capacity at the Telford site will be increased following the award of new contracts. 

Market Update

The fundamental drivers remain in place for continued market growth as obligations increase on waste producers to divert organic waste from landfill.  These statutory obligations increase annually and are expected to increase continuously until 2020.  Landfill Tax ("LFT") will rise by £8.00 per tonne in April 2013, increasing the tax to a total of £72.00 per tonne. The UK Government has confirmed that LFT will rise by £8.00 per tonne per annum until at least 2014 and this is expected to continue to stimulate market growth for the foreseeable future.  In addition, the Scottish Assembly has passed legislation to progressively introduce a complete ban on the landfill of organic waste in both the public and private sectors from 2014. 

The Board is pleased to report a continued significant interest in IVC, often alongside AD.  Local Authority costs are often reduced by the collection of green and food wastes together, and this waste stream is better suited to IVC.  Whilst the Board can also report a continued market interest in energy generation from food waste and the strengthening of interest in technologies such as AD, this technology still relies upon Government subsidy in the form of either ROCs or FITs.  The level of subsidy available remains under review by Government and may be reduced for future schemes.  The impact of this on future AD schemes is uncertain and the Board believes this underlines the merit of the Group policy to promote combined IVC and AD facilities wherever possible, allowing the Group to offer a comprehensive organic waste service irrespective of policy on the levels of subsidy available.

The wider regulatory environment continues to benefit the Group, as its technology lends itself to the additional level of containment required by the regulators, which is now being enforced generally.  In addition, the regulators have introduced policies to reduce the level of low-grade green waste disposal.  In time, this is expected to increase the volume of green waste diverted into the composting sector.

Future Prospects

The financial close of the Dagenham project in the second half of 2012 was a significant milestone for the Group.  Market demand for more capacity remains strong and, given a secure funding position at the project level, the Group would be well placed to continue to take advantage of the expanding market.  TEG maintains a strong pipeline of tender opportunities and has received funding proposals for its next project.  Assuming financial close can be reached on a reasonable timescale and that an appropriate funding structure can be negotiated, the Group will be in a strong position for 2013.  The excellent performance of the Group's own plant operations and the continued growth in this segment demonstrate that if TEG can secure the appropriate level of capital funding it will develop a secure and successful operating platform.   The Board is confident that the Group has an exciting future with a promising outlook.

R Maw

Chairman

18 March 2013

Consolidated statement of comprehensive income

For the year ended 31 December 2012

		Before exceptional costs	Exceptional costs	Total	Total
		2012	2012	2012	2011
	Note	£'000	£'000	£'000	£'000
Continuing operations
Revenue	2	22,418	-	22,418	17,871
Cost of sales		(17,804)	-	(17,804)	(13,391)
Gross profit		4,614	-	4,614	4,480
Administrative expenses - other		(5,336)	(151)	(5,487)	(5,762)
Amortisation of intangible assets		(304)	-	(304)	(304)
Exceptional impairment charges		-	-	-	(6,264)
Total administrative expenses		(5,640)	(151)	(5,791)	(12,330)
Operating loss from continuing operations		(1,026)	(151)	(1,177)	(7,850)
Finance income		70	-	70	16
Finance costs		(172)	-	(172)	(170)
Loss before tax		(1,128)	(151)	(1,279)	(8,004)
Income tax	4	242	-	242	388
Loss and total comprehensive income for the year		(886)	(151)	(1,037)	(7,616)
Attributable to:
Equity holders of the parent
Retained loss		(886)	(151)	(1,037)	(7,616)
Loss per share
Basic and diluted loss per share (pence)	5	(0.60)	(0.10)	(0.70)	(7.90)

Consolidated statement of financial position

At 31 December 2012

		2012	2011
		£'000	£'000
ASSETS
Non-current assets
Goodwill		3,883	3,883
Intangible assets		951	1,255
Property, plant and equipment		15,453	16,196
Trade and other receivables		1,594	1,000
		21,881	22,334
Current assets
Inventories		232	555
Trade and other receivables		9,353	7,329
Taxation receivable		102	166
Cash and cash equivalents		3,674	1,557
		13,361	9,607
Total assets		35,242	31,941
LIABILITIES
Current liabilities
Trade and other payables		9,239	6,477
Current portion of long-term borrowings		385	421
Current portion of deferred consideration		265	253
Provisions		453	265
		10,342	7,416
Non-current liabilities
Long-term borrowings		1,791	1,833
Long-term deferred consideration		418	684
Deferred tax		307	447
Provisions		10	50
		2,526	3,014
Total liabilities		12,868	10,430
Net assets		22,374	21,511
EQUITY
Equity attributable to equity holders of the parent
Share capital		6,582	5,872
Share premium account		39,214	38,045
Merger relief reserve		886	886
Other reserve		1,082	1,061
Retained losses		(25,390)	(24,353)
Total equity		22,374	21,511

Consolidated statement of changes in equity

for the year ended 31 December 2012  

	Share capital	Merger relief reserve	Share premium account	Other reserve	Retained  losses	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2011	3,781	-	36,876	1,005	(16,737)	24,925
Issue of share capital	2,091	-	-	-	-	2,091
Premium on issue of share capital	-	285	1,912	-	-	2,197
Issue costs	-	-	(142)	-	-	(142)
Transfer from share premium	-	601	(601)	-	-	-
Recognition of share-based payments	-	-	-	56	-	56
Transactions with owners	2,091	886	1,169	56	-	4,202
Loss for the financial year and total comprehensive income	-	-	-	-	(7,616)	(7,616)
Balance at 1 January 2012	5,872	886	38,045	1,061	(24,353)	21,511
Issue of share capital	710	-	-	-	-	710
Premium on issue of share capital	-	-	1,419	-	-	1,419
Issue costs	-	-	(250)	-		(250)
Recognition of share-based payments	-	-	-	21	-	21
Transactions with owners	710	-	1,169	21	-	1,900
Loss for the financial year and total comprehensive income	-	-	-	-	(1,037)	(1,037)
Balance at 31 December 2012	6,582	886	39,214	1,082	(25,390)	22,374

Consolidated statement of cash flows

For the year ended 31 December 2012

		2012	2011
		£'000	£'000
Cash flows from operating activities
Loss after taxation		(1,037)	(7,616)
Adjustments for:
Depreciation		1,318	1,661
Amortisation of intangibles		304	304
Goodwill impairment charge		-	2,269
Property, plant and equipment impairment charge		-	3,904
Share-based payment administrative expense		21	56
Taxation credit recognised in consolidated statement of comprehensive income		(242)	(388)
Interest expense		172	170
Interest income		(70)	(16)
Loss / (profit) on sale of property, plant and equipment		366	(65)
Increase in trade and other receivables		(2,618)	(1,077)
Decrease in inventories		323	61
Increase / (decrease)  in trade payables		2,762	(1,184)
Increase in provisions for other liabilities		148	90
Cash from  / (used in) operations		1,447	(1,831)
Interest paid		(126)	(111)
Income taxes  received / (paid)		166	(171)
Net cash from / (used in) operating activities		1,487	(2,113)
Cash flows from investing activities
Acquisition of business - deferred consideration		(300)	(300)
Purchase of property, plant and equipment		(716)	(2,464)
Proceeds from sale of property, plant and equipment		46	73
Interest received		70	16
Net cash used in investing activities		(900)	(2,675)
Cash flows from financing activities
Proceeds from issue of share capital		1,879	3,696
Repayment of loan		(78)	(173)
Payment of finance lease liabilities		(271)	(567)
Net cash from financing activities		1,530	2,956
Net increase / (decrease) in cash and cash equivalents		2,117	(1,832)
Cash and cash equivalents at beginning of the year		1,557	3,389
Cash and cash equivalents at end of the year		3,674	1,557

1.     Basis of preparation

The financial information set out in this announcement does not constitute the statutory accounts of the Group for the year ended 31 December 2012.  The auditors reported on those accounts; their report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2012 will be delivered to the registrar of Companies following the Company's Annual General Meeting.

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement in itself does not contain sufficient information to comply with IFRS.  Details of the accounting policies are those set out in the annual report for the year ended 31 December 2011.  These accounting policies have remained unchanged for the financial year ended 31 December 2012.

Going concern

In forming their views, the Directors have prepared cash flow forecasts for a 12 month period following the date of approval.  As part of the preparation of these forecasts, the Directors have considered the overall financial market at this time, the challenges experienced in obtaining timely project funding and the impact such delays have on the cash flow position of the Group.  The Directors have estimated the likely conversion of potential future contracts, the likely timetable for release of the retentions due in respect of the Manchester contracts, the working capital required and the likely funding available to execute contracts.  Given these considerations, the Directors have adopted a prudent funding policy with regards to forecasts over the period.

After reviewing the forecasts, the Directors have a reasonable expectation that planned projects will be financed in a reasonable period of time, and on that basis the Company and Group have adequate resources to maintain operations over the 12 month period.  For this reason they continue to adopt the going concern basis in preparing the financial statements. 

2.     Revenue

All revenue reported in the period under review arose within the United Kingdom.  An analysis of the Group's revenue for the year (excluding finance income) is as follows:

	2012 £'000	2011 £'000
Revenue from Plant Operations	10,204	8,754
Rendering of services	10,204	8,754
Revenue from EPC Construction Contracts	12,037	8,927
Revenue from Plant Operations	177	190
Sale of goods	12,214	9,117
Total revenue	22,418	17,871

3.     Operating segments

For management purposes, the Group is organised into the following operating segments: Plant Operations and EPC Contracts. During the year, the organisational structure of the Group has been restructured with amounts previously reported as Operations now being classified as Plant Operations, whilst amounts previously reported as Projects now being classified as EPC Contracts.

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

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

The EPC Contracts segment includes IVC and AD sales to third parties including the design, production and installation of plants for sale to third party clients.  The Plant Operations segment relates to facilities which are owned and operated by the Group.  These sites process waste received from customers and manage the compost produced by the facilities.  The Plant Operations segment is also responsible for the maintenance and operating contracts carried out for third parties.  The revenues and net result generated by each of the Group's operating segments are summarised as follows:

2012

	Plant Operations	EPC contracts	Other corporate expenses	Consolidated
	£'000	£'000	£'000	£'000
External revenue	10,381	12,037	-	22,418
Gross profit	2,611	2,003	-	4,614
Segment corporate expenses	(1,263)	(2,207)	(678)	(4,148)
EBITDA	1,348	(204)	(678)	466
Depreciation	(1,260)	(58)	-	(1,318)
Amortisation	(304)	-	-	(304)
Segment loss	(216)	(262)	(678)	(1,156)
Share-based payment expense				(21)
Operating loss				(1,177)
Finance income				70
Finance costs				(172)
Loss before taxation				(1,279)

2011

	Plant Operations	EPC Contracts	Other corporate expenses	Consolidated
	£'000	£'000	£'000	£'000
External revenue	8,944	8,927	-	17,871
Gross profit	1,834	2,646	-	4,480
Segment corporate expenses	(1,110)	(2,320)	(615)	(4,045)
EBITDA	724	326	(615)	435
Impairment charges	(6,264)	-	-	(6,264)
Depreciation	(1,613)	(48)	-	(1,661)
Amortisation	(304)	-	-	(304)
Segment (loss) / profit	(7,457)	278	(615)	(7,794)
Share-based payment expense				(56)
Operating loss				(7,850)
Finance income				16
Finance costs				(170)
Loss before taxation				(8,004)

4.     Income tax

	2012 £'000	2011 £'000
Current tax
Research and development tax credit	(102)	(173)
Total current tax	(102)	(173)
Deferred tax
Deferred tax credit	(140)	(215)
Total deferred tax	(140)	(215)
Total tax credit for the year	(242)	(388)

The taxation assessed for the year differs from the standard rate of corporation tax in the United Kingdom 24.5% (26.5%).  The charge is affected by a number of factors in addition to the standard United Kingdom rate. 

The differences are explained as follows: 

	2012 £'000	2011 £'000
Loss before tax	(1,279)	(8,004)
Income tax credit calculated at 24.5% (2011: 26.5%)	(313)	(2,121)
Effect of  expenses not deductible	220	676
Losses surrendered for R&D tax credit	221	343
Repayable R&D tax credit	(120)	(166)
Movement in unprovided deferred tax asset	(179)	518
Adjustment for tax rate differences	(71)	362
Total tax credit for the year	(242)	(388)

Deferred tax liability

	2012 £'000	2011 £'000
Liability at 1 January	447	662
Amount credited to profit or loss in the year	(140)	(215)
Liability at 31 December	307	447

The rate at which deferred tax is expected to unwind is 23% (2011: 25%) and this has been used to calculate the deferred tax liability.

Unrecognised deferred tax asset

The following deferred tax assets have not been recognised at the balance sheet date on the basis that there is insufficient evidence that the deferred tax asset will be recoverable against future profits of the Group:

	2012 £'000	2011 £'000
Tax losses	(4,606)	(5,236)
Accelerated tax depreciation	253	223
Temporary differences	13	(28)
	4,340	(5,041)

5.     Loss per share

	2012	2011
	£'000	£'000
Loss for the financial year after tax	(1,037)	(7,616)
Adjustments to basic earnings
Exceptional costs	151	6,264
Underlying losses before exceptional costs	(886)	(1,352)
	Number	Number
Weighted average number of shares for the purposes of basic, diluted and underlying earnings per share	148,278,969	96,334,294
	Pence	Pence
Basic loss per share	(0.70)	(7.90)
Diluted loss per share	(0.70)	(7.90)
Basic underlying loss per share before exceptional costs	(0.60)	(1.40)

Underlying losses per share has been disclosed to give a clear understanding of the Group's underlying trading performance.  It has been calculated using the underlying earnings figures above and the weighted average number of ordinary shares above.

Diluted losses per share is equal to the basic loss per share as the share options in issue at 31 December 2012 are anti-dilutive in respect of the diluted loss per share calculation and have therefore not been included.

6.     Annual report

Copies of the annual report are available from the Group's head office at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, PR7 7NA or can be downloaded from the Group's website at www.theteggroup.plc.uk.

This information is provided by RNS

The company news service from the London Stock Exchange

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