Interim Results for the six months ended 30 June 2012
Environmental Recycling Technologies plc ("ERT", "the Company") (AIM: ENRT), which has developed and is exploiting the patented rights to the Powder Impression Moulding ("PIM") process capable of converting mixed waste plastics into commercially viable products, announces its unaudited interim results for the six months ended 30 June 2012.
Chairman and Managing Director's Statement
The first half of 2012 has been a period of good progress for ERT.
Post Reporting highlights:
- 2 New Licenses for the USA.
- Heads of Terms and collaboration agreement with 2k for exclusivity in the UK flatsheet market and the rescheduling of outstanding debt to be paid in full.
- Strengthening of the Executive Board, with the appointment of Lee Clayton as Chief Operating Officer.
As we have previously stated our priority was to resolve historic and legacy issues in order to create a strong platform for future commercial development. Key to this was the strengthening of our executive Board and we were delighted to appoint Lee Clayton, who joined initially as a Non Executive Director, as Chief Operating Officer. This appointment enables ERT to focus greater resource on new technical and commercial opportunities, the early success of which has already been evidenced by recent licensing agreements.
We are greatly encouraged by environmental and recycling initiatives which are gaining traction internationally, in particular the funding which is being made available by local and national governments. Earlier this year the UK government announced, through its UK Green Investments team, £80M of initial funding aimed specifically at small scale waste and recycling infrastructure projects. As we reported previously, Foresight, one of the investors in 2K Maanufacturing, has been selected as the lead fund manager. Equally important has been the announcement from Foresight that it is expanding outside the UK to deliver funding for environmental projects internationally. A recent report from the EU credits the UK plastics recycling industry as being at the cutting edge, which gives credibility to the strategy to export UK technology and innovation globally to meet the ambitions of the green manufacturing revolution. ERT is well placed to exploit these market initiatives.
Summary of current licensee operations
2K Manufacturing
2K Manufacturing continues to make significant improvements to productivity at its flagship PIM operation in Luton, producing the award winning "Eco sheet" plywood substitute from mixed waste plastics. The market for plywood in the UK is substantial. Estimates from data produced in 2006 show that UK consumption was equivalent of approximately 24 million sheets. We are particularly impressed with the growth expectations contained in the recent VCT report from primary investors Foresight which stated that "Customer demand comfortably exceeds the company's ability to supply, even at full plant capacity, and product prices have been increased". It added that discussions were underway with new and existing investors to raise some £10M to increase the number of moulding machines to 40 which will effectively represent a quadrupling of production.
In the light of this ambition and the clear advances at the plant, ERT has recently signed a Heads of Terms for a revised agreement which when completed will reinstate 2K's exclusivity for flat sheet production in the UK. In return ERT and 2K have agreed to the rescheduling of outstanding debts in full and to collaborate to enable ERT to use 2K's facilities as a "shop window" to demonstrate the PIM process to prospective licensees outside of the UK.
We have recovered and retain from 2K the rights to directly license flat sheet PIM production outside the UK, and this will continue to be an important feature of our commercial strategy going forward.
Contour Showers
Ecodec, produced at Contour Showers' Stoke on Trent facility continues to be well received by the market and we are optimistic about increased royalty streams going forward.
Contour Showers and 2K Manufacturing illustrate perfectly the flexibility of the PIM process. The former manufactures a niche high value product which is produced in a variety of sizes on a batch production basis using oven technology whilst the latter manufacture a mass produced high volume but comparatively lower value product into a plywood market worth over £315m (estimated using 2005 data), using a highly sophisticated continuous manufacturing system where the tools are heated and chilled directly by means using channels within moulds.
James Marine
A new License agreement has recently been signed with Brownwater Plastics LLC, a division of James Marine Inc which has pioneered the use of PIM in the production of barge covers in the USA. The key benefits of the PIM cover are that it floats if dislodged overboard (and therefore can be recovered) and can be more easily repaired on site. The covers are produced using a modular arrangement where a number of PIM sections are welded together. Given that each section is approx. 20 ft. X 10 ft., Brownwater Plastics believe this is the largest moulding ever produced using thermoplastics, which further demonstrates the scope and opportunity for the PIM process in highly technical large scale mouldings as might be found in marine, automotive and composite applications rather than simply as a recycling technology.
Whilst it plans to work with recycled material going forward James Marine presently uses virgin raw material in its manufacturing process, which demonstrates that there are commercial applications available for the PIM process outside the use of recycled plastics.
North Brook Farms ("NBF")
We are delighted that a new non exclusive license has been signed with Northbrook Farms to produce flat sheet primarily for agricultural applications within the North American Free Trade Area. The enquiry originated from the exhibition in Atlanta in March this year. We introduced NBF to 2K Manufacturing which has shipped a significant volume of EcoSheet to NBF to enable NBF to evaluate the USA market. We are particularly excited by this new agreement because NBF fulfils all the criteria which we have identified for the ideal PIM licensee: plastic manufacturing experience, waste and recycling experience, strong entrepreneurial credentials and an ambitious management team.
Patent Portfolio protection
We have continued our policy of robustly policing our patent portfolio and were pleased that our USA patent has now been granted. We continue to look at ways of protecting and enhancing our Intellectual Property bank.
Board
The appointment of Lee Clayton as our Chief Operating Officer strengthens the executive team and the board is looking to appoint new Non Executive directors whose experience and skills will further benefit the Company. As our commercialisation accelerates we would expect to appoint a full time Financial Director and our present FD David Shepley-Cuthbert will move to an NED role.
Outlook
Arup
Arup continues to be very interested in PIM and, as we previously reported, featured the process in its delegate's presentation at the Plasticity event at the Earth Summit in Rio de Janeiro in June. ERT is working with Arup to develop opportunities for PIM technology such as flat sheet produced from recycled plastic for use in construction and events centred around the Rio 2016 Olympics. As has always been envisaged, the collaboration agreement enables new and prospective licensees to engage directly with Arup to secure its well renowned project management and industrial services. We believe this will now become more important as we accelerate the commercial roll out of the technology on a global scale.
R&D
The recently re-commissioned and improved lab PIM line now installed in Derbyshire has enabled ERT to produce PIM plaque samples using target plastic waste streams from prospective licensees. This was a key element of the proposal made to NBF, where samples of its plastic waste have already been pre-prepared in readiness for trials on the lab line.
ERT is undertaking a project with one of its licensees which is aimed at reducing production costs and increasing productivity. The specific aims are to reduce raw material costs, cycle times, and energy costs. The work will initially be conducted on the PIM lab line before running full scale trials on their equipment using new material formulations which it is hoped will optimise processing conditions. It is hoped that this collaboration will have the effect of increasing royalty revenues this year.
The lab facility also enables us to engage with licensees such as Contour Showers, whose firsthand experience of manufacturing using the PIM process increases our understanding and experience of how to apply the PIM process to use a wider variety of different plastic waste streams.
It is envisaged that ERT will re engage with an academic institution to further develop the PIM process primarily into more specialised and technical applications.
In conclusion having strengthened our executive management team and refined our commercial strategy; we are encouraged by recent progress. We are developing a more aggressive marketing strategy which will include a review of our PR activities. Given the success of the Atlanta show we have plans to showcase the PIM technology at leading international industry exhibitions to make the PIM process a more widely acknowledged plastics manufacturing process, particularly in the light of the increasingly complex issues surrounding recycling plastics and resource efficiency going forward, from which ERT can benefit.
| Ken Brooks | Roger Baynham |
| Chairman | Managing Director |
Financial review for the six months ended 30 June 2012
Results
Revenue for the six months ended 30 June 2012 was £30,000 (H1, 2011: £94,000). The loss on operations was £0.77 million (H1, 2011 loss: £0.88 million). Losses attributable to equity shareholders were £1.49 million (H1, 2011 loss: £1.67 million).
Dividends and loss per share
As at 30 June 2012 as reported in the statement of financial position, the company does not have distributable reserves and are unable to declare a dividend.
The loss per share was 0.27 pence (H1, 2011: 0.32 pence).
Trading
Turnover included revenue for royalties.
Other administrative expenses incurred in the day to day running of the business were £0.80 million (H1, 2011: £0.85 million).
Total administrative expenses were £0.8 million (H1, 2011: £0.97 million) which reflects the fall in exception costs to £nil (H1, 2011: £0.13 million). These exceptional costs related to the impairment of available-for-sale financial assets.
Financing
Short term funding
The company meets its day to day cost base by managing its cash resources and securing appropriate levels of finance to settle its liabilities as they fall due. Additional cash loans during the period totalled £0.75 million.
The directors have received written assurance from Oxford Capital the lenders of £5.52 million that there is no intention to request immediate repayment of the liabilities and that subject to agreement, the lender would accept repayment by way of a debt for equity swap.
Short term funding facilities have been organised to cover the Company's normal overheads for the rest of the year. The directors do not expect there to be a requirement to repay the loans in cash during the next 12 months.
David Shepley-Cuthbert
Finance Director
Independent review report to Environmental Recycling Technologies plc
Introduction
We have been engaged by the company to review the financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Shareholders' Equity, Statement of Cash Flows and notes 1 to 6.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
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 in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.
BDO LLP
Chartered Accountants and Registered Auditors, Birmingham. 25 September 2012
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127)
Interim Accounts for the Six Months ended 30 June 2012 (unaudited)
The financial information contained within these accounts has been prepared by the Directors who accept responsibility for the financial information presented below and confirm that it has been properly presented in accordance with applicable law. The interim financial statements were approved by the Board of Directors on 25 September 2012 and have been prepared on the basis of the accounting policies set out in note 1. The financial information covers the six months ended 30 June 2012.
Statement of Comprehensive Income (unaudited)
| Six months ended 30 June 2012 |
Six months ended 30 June 2011 |
Year ended 31 December 2011 |
||
| £'000 | £'000 | £'000 | ||
| Continuing operations | note | Unaudited | Unaudited | Audited |
| Revenue | 30 | 94 | 528 | |
| Administrative expenses: | ||||
| Exceptional items | 2 | - | (127) | (4,150) |
| Other | (800) | (845) | (1,974) | |
| Total administrative expenses | (800) | (972) | (6,124) | |
| Loss on operations | (770) | (878) | (5,596) | |
| Finance income | 3 | - | 35 | 35 |
| Finance costs | 3 | (719) | (830) | (1,336) |
| Loss before income tax | (1,489) | (1,673) | (6,897) | |
| Tax on loss on ordinary activities | - | - | - | |
| Loss for the period from continuing | ||||
| operations attributable to the equity shareholders of the company | (1,489) | (1,673) | (6,897) | |
| Other comprehensive income | ||||
| Available-for-sale financial assets - foreign currency and valuation movements | - | (4) | (1) | |
| - impairment | - | - | - | |
| Other comprehensive income | - | (4) | (1) | |
| Total comprehensive loss for the period attributable to equity shareholders of the company | (1,489) | (1,677) | (6,898) | |
| Loss per share (pence) | ||||
| Basic and diluted loss per share | 4 | (0.27p) | (0.32p) | (1.27p) |
Statement of Financial Position (unaudited)
| Six months ended 30 June 2012 |
Six months ended 30 June 2011 |
Year ended 31 December 2011 |
||
| £'000 | £'000 | £'000 | ||
| Assets | note | Unaudited | Unaudited | Audited |
| Non-Current Assets | ||||
| Intangible assets | 3,786 | 8,449 | 4,003 | |
| Available-for-sale financial assets | 32 | 32 | 12 | |
| Total non current assets | 3,818 | 8,481 | 4,015 | |
| Current assets | ||||
| Trade and other receivables | 5 | 1,851 | 1,515 | 1,752 |
| Cash and cash equivalents | 190 | 270 | 230 | |
| Total current assets | 2,041 | 1,785 | 1,982 | |
| Total assets | 5,859 | 10,266 | 5,997 | |
| Liabilities | ||||
| Current liabilities | ||||
| Trade and other payables | 1,549 | 1,263 | 1,479 | |
| Borrowings | 6 | 5,517 | 3,513 | 4,249 |
| Total current liabilities | 7,066 | 4,776 | 5,728 | |
| Total liabilities | 7,066 | 4,776 | 5,728 | |
| Net (liabilities)/assets | (1,207) | 5,490 | 269 | |
| Equity attributable to the shareholders of the parent | ||||
| Share capital | 14,026 | 14,026 | 14,026 | |
| Share premium reserve | 36,637 | 36,637 | 36,637 | |
| Warrant reserve | 439 | 428 | 426 | |
| Available-for-sale reserve | (71) | (74) | (71) | |
| Retained earnings | (52,238) | (45,527) | (50,749) | |
| Total equity | (1,207) | 5,490 | 269 |
Statement of Changes in Shareholders' Equity (unaudited)
| Six months ended 30 June 2012 | Share Capital |
Share Premium |
Warrant Reserves |
Available -for-sale reserve |
Retained Earnings |
Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Loss for the period | - | - | - | - | (1,489) | (1,489) |
| Total comprehensive loss for the period | - | - | - | - | (1,489) | (1,489) |
| Options granted | - | - | 13 | - | - | - |
| Movement for the period | - | - | 13 | - | (1,489) | (1,476) |
| Balance at 1 January 2012 | 14,026 | 36,637 | 426 | (71) | (50,749) | 269 |
| Balance at 30 June 2012 | 14,026 | 36,637 | 439 | (71) | (52,238) | (1,207) |
| Six months ended 30 June 2011 | Share Capital |
Share Premium |
Warrant Reserves |
Available -for-sale Reserve |
Retained Earnings |
Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Loss for the period | - | - | - | - | (1,673) | (1,673) |
| Foreign currency movement | - | - | - | (4) | - | (4) |
| Total comprehensive loss for the period | - | - | - | (4) | (1,673) | (1,677) |
| Issue of share capital | 1,779 | 1,091 | - | - | 155 | 3,025 |
| Warrants granted | (203) | 253 | - | (50) | - | |
| Warrants exercised | - | - | (389) | - | 389 | - |
| Movement for the period | 1,779 | 888 | (136) | (4) | (1,179) | 1,348 |
| Balance at 1 January 2011 | 12,247 | 35,749 | 564 | (70) | (44,348) | 4,142 |
| Balance at 30 June 2011 | 14,026 | 36,637 | 428 | (74) | (45,527) | 5,490 |
Statement of Changes in Shareholders' Equity (unaudited)
| Year ended 31 December 2011 | Share Capital |
Share Premium |
Warrant Reserves |
Available -for-sale reserve |
Retained Earnings |
Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Loss for the year | - | - | - | - | (6,897) | (6,897) |
| Foreign currency movement | - | - | - | (1) | - | (1) |
| Total comprehensive loss for the year | - | - | - | (1) | (6,897) | (6,898) |
| Issue of share capital | 1,779 | 1,091 | - | - | 155 | 3,025 |
| Warrants and options granted | - | (203) | 253 | - | (50) | - |
| Warrants and options exercisd | - | - | (389) | - | 389 | - |
| Warrants and options lapsed | - | - | (2) | - | 2 | - |
| Movement for the year | 1,779 | 888 | (138) | (1) | (6,401) | (3,873) |
| Balance at 1 January 2011 | 12,247 | 35,749 | 564 | (70) | (44,348) | 4,142 |
| Balance at 31 December 2011 | 14,026 | 36,637 | 426 | (71) | (50,749) | 269 |
Statement of Cash Flows (unaudited)
Six months ended 30 June 2012
| Six months ended 30 June 2012 |
Six months ended 30 June 2011 |
Year ended 31 December 2011 |
|
| £'000 | £'000 | £'000 | |
| Unaudited | Unaudited | Audited | |
| Continuing Activities | |||
| Loss before tax | (1,489) | (1,673) | (6,897) |
| Adjusted for: | |||
| Amortisation of intangible assets | 217 | 448 | 894 |
| Impairment of intangible assets | - | - | 4,000 |
| Accrued interest cost | 181 | 180 | 318 |
| Share options granted | 13 | - | - |
| Loss on liabilities settled in shares | - | 155 | 155 |
| Impairment of available-for-sale assets | - | 127 | 150 |
| Amortisation of debt issue costs | 518 | 460 | 729 |
| Other | - | - | 3 |
| Adjusted loss from operations | (560) | (303) | (654) |
| Increase in trade and other receivables | (119) | (60) | (297) |
| (Decrease)/increase in trade and other payables | (111) | (343) | 246 |
| Net cash outflow from operations | (790) | (706) | (1,197) |
| Cash flows from financing activities | |||
| Issue of equity share capital | - | 1,230 | 1,230 |
| Inception of loans | 750 | 300 | 823 |
| Repayment of loans | - | (731) | (803) |
| Net increase in cash from financing activities | 750 | 799 | 1,250 |
| Net (decrease)/increase in cash | (40) | 93 | 53 |
| Cash and cash equivalents at beginning of period | 230 | 177 | 177 |
| Cash and cash equivalents at end of period | 190 | 270 | 230 |
Notes
Notes to the Financial Statements are available in the printable PDF version.
Page last updated: 26 September 2012